The Indian derivatives market is expected to receive a jolt as the government considers labelling the head of futures and options trading “speculative income” from the existing “business income,” local media outlet Financial Express reported.

Expected Changes in Futures and Options Trading Rules

Other proposed steps include imposing a 30 percent tax deduction at source (TDS) for all futures and options transactions. Although traders can claim these deducted taxes back, they can only do so when filing the tax return in the following financial year.

The reported changes around futures and options trading might be proposed in the country’s annual budget, which is expected to be presented in the third week of July.

Although there is no confirmation from the Indian government on any proposals around futures and options trading, the report outlined that expected new rules are aimed at mitigating retail trading risks.

“The government and regulators have been worried for quite some time about the increased participation of retail investors in the derivatives market,” an unnamed source from the local news outlet said. “There are fears that if markets correct, there could be significant losses to retail investors, leading to an overall dampening of sentiments.”

India makes up 90% of global options trading. With a 64% spike in volumes last year, investors lost $5.4 billion in FY 21-22 on derivatives trading.

SEBI warns that 90% of retail traders lose money in the F&O market.

Remember, there's no easy money.

Be cautious! pic.twitter.com/fn2gIQCzVg

— Achal Shah (@achalshah06) May 30, 2024

Putting Trading Similar to Lottery

If the expected new rules are implemented, futures and options trading in the Indian market will be on par with cryptocurrency investments or lottery. The Indian government changed its tax regime for cryptocurrencies in 2022, implementing a similar TDS on every transaction, but that is only 1 percent of the transactions. Gains from crypto trading, however, attract a 30 percent taxation.

Furthermore, if futures and options income are labelled as “speculative income,” traders will not be able to offset income with other business losses. The offset will only be allowed within the futures and options income stream. A similar rule is already in place for crypto trading.

It remains unclear whether the Indian government plans to impose a higher level of taxation on gains from futures and options trading. Currently, as a business income, normal income tax slabs are applicable to futures and options trading gains, which can go up to 30 percent depending on the yearly income.