F&O and derivatives tax turnover

This is the most popular formula for calculating options turnover.

Net premium received on sale side + Difference between buy and sell price.

On the other hand, we use this formula for futures turnover.

Absolute profit + Absolute loss.

I never sell naked options. I exit my long positions on options frequently, but I never sell an option with the intention to receive the premium on expiry.

  1. Someone told me that we can apply the same formula we use for Futures, in the case of options too. Is that true?

  2. Are there some official definition for options turnover on income tax / other govt website which shows the options turnover formula?

Hi @ProfessionalLo

The method of calculating turnover is a debatable issue. The grey area is that there is no guideline as such from the IT department. However, ICAI has issued a guidance note on tax audit under Section 44AB by ICAI (Institute of chartered accountants of India, the governing body for CA’s). The article on Page 42, Section 5.14 of this guidance note has a guideline on how turnover can be calculated. It says

For all non-speculative transactions (Derivatives, futures, and options), turnover shall include:

  1. The total of favourable and unfavourable differences
  2. Premium received on sale of options is also to be included in turnover
  3. In respect of any reverse trades entered, the turnover shall also include difference thereon.

For Speculative transaction: In the case of intraday there is no actual delivery or transfer of the commodity or scrips. The turnover, in this case, shall be absolute profit i.e the Sum of positive and negative differences between buy and sale value.

As per our opinion, you cannot apply the same formula we use for futures as it clearly mentions that premium is also to be considered in the case of options.

Attaching the link for guidance note: https://resource.cdn.icai.org/34728gn-taxaudit-dtcicai.pdf

Hope this helps :slightly_smiling_face:

@Skinny_Vegan Please delete your comment and create a new thread.

Thank you for the detailed response. You are right.

But what my friend (who is also a CA) told me also makes sense.

ICAI guidelines seem to assume you are selling premium to make a profit by theta decay.

But in my case, I am not selling them in the first leg to make a profit. In my situation, I am just exiting the option trade I made, and the selling option is the second leg of the trade.

I wish there was a way to know what income tax department thinks about this.

Hi @ProfessionalLo

The guidelines issued by ICAI mentions the turnover calculation for all types of transactions.
Therefore we will suggest the same method of turnover calculation irrespective of the the intention or strategy of the the transaction. The turnover of options shall include:

  1. Premium received on sale of options
  2. Absolute profit i.e. the sum of positive and negative differences between buy and sale value.

Hi, can you define the ‘net profit’ used in the 6% of turnover calculation? Is it trading profit (i.e. just sale price - buy price) or should it be trading profit - expenses?

Hey, your net profit will be the one after having factored in your expenses. Hope this helps

How can we calculate turnover in F&O trades?
Which IT section is applicable in calculating turnover and taxation on F&O trades?
Can we square of it with equity trades?

Hello @Dushyant_Saraf_Aggar ,

The turnover in case of F&O Trades is calculated as follows:

  • Turnover of Futures = Absolute Profit
  • Turnover of Options = Absolute Profit + Premium on Sale of Options

Absolute profit means sum of positive and negative differences.

Also, you can refer the below guide for detailed explanation of F&O turnover calculation:

Also, you cannot square off F&O Income/Loss against equity Income/Loss since equity gain/loss is disclosed under Income Capital Gains whereas income/loss from F&O activities is shown under Profit & Gains from Business and profession.

Hope it helps!

Hi Team,
As per the below notification from you in this forum, I want to know why to calculate
Sell value for the options turnover?
Reason for this question is, when you sell the option you receive the premium and the same option when you buy it (square off the position), You have to pay the premium.
Hence it already comes under “abs(sell value – buy value)”
For Options transactions, Turnover = abs(sell value – buy value) + sell value

@Sakshi_Shah1 could you help with this ?

Adding to that I’ve 1 more question. I trade with AngelOne and they don’t provide consolidated Brokerage report for the Year, in that case how to claim the Brokerage expense?

Hello @msmaheshk1

As per the guidance note of ICAI, the trading turnover in case of options trading must be calculated as the sum of absolute profit and premium on sale of options. Most broker statements calculate profit or loss as difference in the value of premium and not actual sale value. Thus, the turnover in such cases is calculated as sum of absolute profit and sale value (premium on sale of options).

The data for brokerage expense can be provided by the broker only. To claim brokerage as an expense against your trading income, you must download a report that provides the brokerage expense. You can raise this issue with the respective broker if they are not providing any report for brokerage expense.

I trade with Angelone where your company has listed to file the returns. So tell me how can I provide my P&L report of Fy21-22 so that you can check and help me to fill. It has got more trades on Options side.

Do you know Angelone provides brokerage report?

Since you’re a trader on Angelone, you can import your data on Quicko. On importing the trading data successfully, you’ll be able to view the profit/loss. Further, under the tab expenses, you’ll be able to view the breakdown of expenses including brokerage.

You can read more about it here - Understanding Angel One Tax P&L Report

The tax filing for FY 2021-22 (ITR-2 & ITR-3) has not yet been enabled by the Income Tax Department. For the tax filing this year, there would be enhancements in the integration with Angel One post which you can use Quicko to import the trading data and e-file your ITR.

How to import data on Quicko?
And there is any charges when we do it?

How Angelone calculates the turnover?

Hey @msmaheshk1

To import data from angel one on Quicko, follow these steps:

  • Create an account on Quicko
  • Navigate to Incomes Tab > Select Capital Gains.
  • Select Import Investments.
  • Under Import using Integrations > Select Angel One and click Continue
  • Enter your Angel One credentials to Login. Your data will be successfully imported.

You can read all about the Angel One Tax P&L Report including turnover calculation here - Understanding Angel One Tax P&L Report