F&O and derivatives tax turnover

Income Tax Income from Business or Profession
42

Hi @Rahul_Bhide,

In this case, for AY 2023-24,

  1. Tax is levied on the gains on FnO, and not on the turnover amount.
  2. There is a concept of Advance tax, which is to be paid by a taxpayer at the right time so that there is no interest/penalty levied.

You can read more about Tax on F&O - Futures and Options Trading - Learn by Quicko.
You can also book a MEET, for personalized expert assistance with your taxes.

43

Hi…,

I need clarification for the below trade

01-08-2022 bought ABC share 250 numbers at 2,320 per share

01-08-2022 sold ABC share 2300 strike August call option Rs 130 per share (one lot of 250 shares)

31-08-2022 ABC share price was 2350 as the call is ITM, stock delivered at 2300

Can you please see the below explanation of turnover will be calculated for the option sold for Rs 130 (250 in a lot) is correct

If I am declaring option profits under 44AD, can I declare 32,500 as turnover and declare 6% of profit ? (There will be other option trades turnover also, as the total turnover over is below 5 cr )

For the equity delivery, as it is STCC, can I show the difference (2320-2300)*250 = 5000 plus brokerage/STT as Short term capital loss. Say, 5000+ 2000 (brokerage plus STT) total 7000 short term capital loss

Please confirm the treatment of option profit and delivery loss is as per the regulations. Thank you in advance for your support.

regards
Ramki

44

@Hem_Shah Can you please help here?

45

@Shrutika_Shah @Hem_Shah can you please reply when you get time. Thank you

46

Hi @ramki

Apologies for the late response.

F&O Income or Loss is a non-speculative business income as per the Income Tax Act. Thus, it should be reported as Business Income under the head of Income from Business and Profession.

According to the act, options turnover & profit can be reported under section 44AD (Presumptive taxation for Business). However, the turnover limit for the same is 2crore. Here’s a read on Section 44AD - Presumptive Taxation for Business - Learn by Quicko your reference.

Also, as per the new guidelines by ICAI, now the turnover is calculated as the absolute profit/loss in case of both, futures & options. Here’s a read on turnover calculation for F&O.

For equity, the STCL can be reported under the head Income from Capital Gains as Short term capital loss.

Hope this helps.

47

turnover will be the absolute returns . BUT , that is gross or net ?
e.g. :

rupees
buy value 1000
sell value 2036.1
gross profit 1036.1
less :
gst -38.86
Transaction Charges -209.81
SEBI Charges -6.08
Stamp Duty -91.00
STT -760.00
net profit -69.65

so in the above example ; my turnover is 1036.10/= OR 69.65/=
?

48

After issuance of eighth edition of the guidance note dated 14/08/2022 by the ICAI, the calculated value for options turnover consideration is absolute value of difference between the buy and sell value I have seen examples of option buying for calculation options turnover. Does this method apply for options sellers as well where the premium is received upfront?

49

Hi @HIREiN,

In case of futures and options, turnover will be the gross absolute returns, meaning thereby in the example given by you, turnover will be ₹1036.10.

Hope this clarifies!

50

Hi @gdshan,

In case of option sellers, the absolute profit/loss will be only considered as turnover. In case the net profit or loss for transaction does not include the premium received amount it would be added separately.

Hope this helps!

51

Hi

Thanks for your reply. Can you please explain the second part of your reply with an example viz “net profit/loss for transaction does not include premium received amt.”?. Much obliged.

Shankar

52

Hi @gdshan,

If the net profit or loss for the options transaction entered into by you does not consider the amount of premium received by you on such transaction then such premium received amount has to be added to calculate the turnover.

For example, you entered into an options transaction and received a premium of ₹1000. For the same transaction you earned a profit of ₹500(without considering the premium received amount). In this case your total turnover will be ₹1500.

In the same example if you had earned Net Profit of ₹500(considering the premium amount received) then your turnover shall be ₹500.

Hope this helps!

53

Hi

My apoligies if I have not understood the context correctly. When I receive options premium while selling it, my profit is capped to the extent of premium received while the loss is unlimited. Hence, your reply in the second para is not understood by me fully. Is there any other source for an options seller to earn profit other than through receiving premium? Thanks a lot for taking your time in replying.

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54

Hi @gdshan,

Lets understand better:
For example : If you have sold an option and received ₹1000 as premium, the same option is bought back at lower price with earning a profit of ₹500 then in this case your turnover is Absolute of Profit = ₹500

In case you sold an option and received ₹1000 as premium and you hold it till expiry and the buyer did not exercise the option and hence there is no buy of that particular script. Hence in case of an option expiry the turnover would never be more than your Gain or loss of premium and in this case the P/L would be ₹1000 and thus your turnover would be ₹1000

Hope this clarifies!

55

Hi

Many thanks for taking your time in clarifying.

Regards

Shankar

1 Like