How to calculate F&O Turnover

Income Tax Income from Business or Profession
1

Are you trading in Futures and Options but confused about Turnover calculation?

Futures and options are derivatives, that derive their value from an underlying asset. While the futures is a contract to buy or sell on a future date, the options allow an investor to protect their investment against fluctuating prices.

Turnover basically means the total sales made by a person in a particular time frame. Turnover is calculated to get a brief idea of the business and if turnover exceeds certain threshold limits then a tax audit is also applicable.

Unlike a regular business, Futures, and options are settled by paying the differential amounts without the actual delivery. Therefore the turnover calculation is quite different from the regular calculation.

To calculate the turnover, the difference of the purchase price and the sales price is taken. The negative signs are ignored and you need to sum up all the differences, which is called Absolute Profit and Loss and is also considered the turnover.

Letā€™s say Mr. Dave is involved in trading in Futures and Options Contracts. He has entered into some transactions. The details of the transactions entered by him are as follows:

Instance 1: Futures Transactions

image
image936Ɨ240 14 KB

In the above case, though there is a loss of ā‚¹2,00,000, for the purpose of calculating turnover the negative is ignored and the loss is added to profits.

Instance 2: Options Transactions

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image832Ɨ239 11.6 KB

In the above case also the negatives of losses are ignored for calculating turnover and are added to profit.

Have questions? Shoot ā€˜em here!!

5

If a future contract is sold on the 10th day from the date of buying, and for 9 days if it is appearing as loss. while computing turnover, do we need to calculate 2 days loss also or only profit on the date of sale.pls advise

6

Hi @Vik

When calculating turnover for a future contract, it is important to consider the realized profit and loss (P&L).

In your scenario, if the contract is sold on the 10th day from the date of buying and has appeared as a loss for 9 days, you should include both the realised loss and profit on the date of sale in the turnover calculation.

For example, you have a realised loss of ā‚¹100 and profit of ā‚¹300, then after calculation your turnover would be ā‚¹400, and your Net P&L would be ā‚¹200.

Hope it helps.

7

In future contract if person has bought on 1st Jan at Rs 100 and sold on 6th Jan at 110. While on 2nd jan, jan 3rd, 4th jan 5th Jan, the closing price was 95,96, 97,98 respectivelyā€¦ then what would be turnover for tax purpose? Kindly adviseā€¦ thankyou

8

@Vik

In this stated case, the turnover would be realized profit that is ā‚¹10 (ā‚¹110 - ā‚¹100). The closing price mentioned by you on the 2nd - 5th Jan are the unrealized losses which are not considered for the calculation of turnover

Here, in your previous scenario as well the losses for 9 days has to be ignored as theyā€™re not realized and the 10th day realized profit needs to be considered.

Read more about Trading Turnover Calculation for Trading Income - Learn by Quicko.

Hope this clarifies your query.

9

F&o just did few trades and total loss is 9k. Total options turnover is less than 1 lakhs. My basic income is below 2.5 lakhs. So did i need to file itr 3 returns ?

10

Hi @Surresh

Yes, you will be required to file ITR 3 since you will be reporting F&O & Intraday income. in your ITR.

11

Is there any change in method of calculating turnover in case of option trading for the purpose of audit requirements ?
How to calculate the trunk over in option trading ?

12

Hi @vsvdevan

As per the latest guidelines by ICAI, the turnover is calculated as the absolute profit/loss in case of both, futures & options. Hereā€™s a read on turnover calculation for F&O for your reference.

13

Hi,

If I am trading in gold futures throughout the year, how will I calculate the total turnover? Would be net profit or loss during the year? or would I have to take the absolute profit and losses for the different future expiry contracts I traded during the year?

Here, I wish to calculate turnover from a presumptive taxation standpoint, so that I can reduce my overall income tax liability by taking net profit or loss during the year.

Regards,
Anuj

Regards,
Anuj

14

Hello @anuj_aggarwal

Income from Futures is treated as business income. Turnover for futures is ā€œAbsolute profit or lossā€.

Also definition of turnover does not change whether you opt for presumptive taxation scheme or normal scheme.

Hope this helps.

15

Hello Sir/ Maam, Iā€™m getting different results on different websites, please clarify to me about the calculation of Options turnover not futures. Someplaces I read it is only the absolute value of P&L but at other places I read that it is Absolute Value of P&L + the sale value. Like in the example above
Qty: 25
Buy: 1000
Sell: 970
P&L: -750

Is the turnover 750 (absolute value) or is it
750+(25x970)=25,000 ???
Thanks in advance

16

Hey @sann,

The turnover will be calculated as the sum of absolute P&L. In your example, the turnover will be 750.

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18

As per Ninth Edition of Guidance Note by ICAI (01-09-23), Kindly look at Options Turnover calculation wordings 1) The total of favourable and unfavourable differences in case of squared off transactions shall be taken as turnover.
2) Premium received on sale of options is also to be included in
turnover. However, where the premium received is included for
determining net profit for transactions, then such net profit
should not be separately included.
Check the example in image
Options turnover

19

In earlier case it was Absolute Profit/Loss + Sale Value of options, which was inflating turnover since profit earned was calculated twice, to rectify this net profit from such premium was reduced to get accurate turnover. Effectively it shall work out Absolute Profit/Loss + Sale Value of options - Net Profit earned, this working needs to be done trade wise.

20

Hi,

I have net profit of 2 lacs in STCG with multiple trades carried out in the financial year.(delivery based equity swing trading)

Total sell value is roughly 50 lacs throughout the financial year. I plan to declare the income under business income. Will Section 44AD be applicable to me? Will I have to get a tax Audit done?

21

Also, Lets say, I declare delivery based equity swing trading as business income (stock in trade).
So, can I setoff the profits earned in it with my previous yearā€™s carry forward losses (which I had incurred in F&O as business)?

22

Hey @Ab123,

Yes, youā€™ll be able to set-off those losses as both of these will be considered non-speculative business income.

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