According to SEBI, 9 out of 10 investors doing FO trading lose money. This is the derivatives segment where money is earned by accurately predicting the fall or rise in shares. Retail investors are increasing rapidly in FO trading. To reduce this, the government can increase the tax on FO earnings in the budget as it did in the case of cryptocurrency.
From the Ministry of Finance to financial regulators like SEBI and RBI, everyone is very concerned about the increasing number of retail investors in F&O (Futures and Options) trading. Especially, young investors who are entering the world of stock market for the first time are losing a lot of money in it. There have also been reports that many investors are doing F&O trading by taking personal loans, in which they are suffering double loss.
In such a situation, there is speculation that the tax on F&O may be increased in the budget to be presented in the third week of July. This will curb the inclination of retail investors towards the F&O segment, who trade with the dream of becoming rich overnight and end up incurring losses.
What is the problem with the F&O segment?
According to SEBI, 9 out of 10 investors who do F&O trading lose money. This is the derivatives segment, where money is earned by accurately predicting the fall or rise in shares. In this, shares worth lakhs can easily be bought for 10 to 15 thousand rupees. If your bet is right, you can earn a good amount. On the other hand, if the prediction turns out to be wrong, you lose the same 10-15 thousand rupees that you have invested.
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This is the reason why many people, with the dream of becoming rich overnight by investing a small amount of money, invest in F&O trading and end up incurring losses because they do not have a deep understanding of the market fluctuations.
What does the government want?
Recently, Finance Minister Nirmala Sitharaman and Chief Economic Advisor V Anant Nageshwar expressed concern over the increasing risk for retail investors in F&O. Earlier in November 2023, SEBI Chief Madhabi Puri Buch had also cautioned investors against making big bets on F&O. National Stock Exchange (NSE) Chief Ashishkumar Chauhan has also warned retail investors that there is a high risk of losing money in the F&O segment. Therefore, they should invest in equities through mutual funds.
Considering all this, it is being speculated that the Finance Minister may take some measures to keep retail investors away from the F&O segment in Budget 2024. Increasing tax is also an option in this.
What is the tax on F&O now?
Currently, income from F&O comes under the salary or business income category and is taxed accordingly. This means that income from F&O is added to your salary or business income. Then you have to pay tax on it according to your tax slab. But, if F&O income is put in the ‘speculative income’ category, then it will become like lottery or crypto investment.
Then not only will there be a huge tax on F&O earnings, investors will not be able to avail many other benefits. Currently, if you suffer a loss in F&O, then you can show that loss and avail tax exemption on the profits of the rest of the business. But, after changing its category, you will not get this benefit. The government can also impose TDS on F&O income, as was done on cryptocurrency in Budget 2023-24.
