If you traded futures or options at any point during the financial year — even once, even a small position, even if you lost money — you cannot file ITR-2.
This is one of the most common and consequential mistakes active traders make in India. Let's go through exactly why, what the correct treatment is, and what happens if you get it wrong.
Equity delivery trades are capital gains. They go in Schedule CG of your ITR. They attract STCG at 20% or LTCG at 12.5% depending on your holding period.
F&O is different. Section 43(5) of the Income Tax Act explicitly classifies derivatives trading as non-speculative business income. Not capital gains. Business income.
This classification exists because F&O contracts are settled without actual delivery of shares. Parliament decided that income from such instruments should be treated as business income, and that treatment has never changed.
Your Form 26AS and Annual Information Statement (AIS) will show your F&O transactions. These are reported to the Income Tax Department by your broker automatically.
When the ITR-2 you filed is compared against your AIS — which the department does routinely — there will be a mismatch. F&O transactions visible in AIS, no corresponding business income schedule in your return.
This triggers either a defective return notice under Section 139(9), asking you to refile correctly, or a scrutiny assessment under Section 143(2), which is a more formal process requiring you to explain the discrepancy.
The correct filing costs you nothing extra. The incorrect filing costs you time and money to fix.
When in doubt, file ITR-3. It accommodates everything ITR-2 does and more.
Upload your tradebook. Fynr detects F&O activity automatically and flags the ITR-3 requirement. Free.
Scan my tradebook →CA verification required on all outputs. This is not tax advice. Consult a qualified Chartered Accountant for your specific situation.