9 lakhs turnover from options trading but actual profit is -18000

#1

I recently started option trading and for this year i have clocked 9 lakhs in turnover but i have incurred a loss of 18000.

So on what amount do i pay tax on 9 lakhs or on 18000(carry forward)? If 9 lakhs is the amount i have to pay tax then i would never be able to be profitable after taxes!!

Also, I am pretty confident I will surpass 1 crore limit, so what happens next?

I will have to get my accounts audited, I read about that…
Why are people scared because of that?

Also, what happens if my net profit is less than 8% of turnover (lets say 1 crore) ???

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#2

Kushal … In case of option , the value of turnover is option premium. You wont be paying any tax on the turnover.

If you surpass a crore limit , get the books Audited and file the return irrespective of profit / losses. People will be scared till they don’t know the subject , once experienced its easy.

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#3

Thank you so much. I was shit scared when I compared the turnover to the loss i made because i thought I will have to pay 30 lakhs if I crossed 1 crore limit… My bad…

Also, Can I claim expenses for Reuters Eikon while trading? it is around 3 lakhs/year…

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#4

You can its a trading expense

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#5

Thank you sir…
so only purpose of determining turnover is for audit…??

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#6

Mam
If ur turnover is over 1 Cr no issue in audit if ur profit is less than 8% U hv to pay Auditor about 15 k to 20k for auditing and don’t have to pay any tax for loss but audit required

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#7

1 cr turnover in manufacturing is quite an amount, compared to Retail trading, … trading in shares or options, futures in the order of easy achievability. Certainly not in the order of profitability, though!
Just 5 lots of banknifty trade would make it 1 cr, whereas traders walk with profit or loss figure of just a thousand! Anyone who trades in futures even for testing, say just 4-5 trades in a full year would land in tax audit.
Why people fear the tax audit is that it involves considerable money outflow and maintaining voluminous good amount of paper work as the auditors insist on printed paper for tax audit. The bottom line is, unnecessary huge waste of time and money in regulatory compliance. Govt should consider relaxing it to a 100 crores at least, considering the fact that every transaction is known to the govt at the very nanosecond it happens.

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#8

I agree.
And since every online transaction is linked to PAN, there shouldn’t be all these processes of ITR filing, auditing, etc.

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#9

Turn over includes only the profit and losses and not the 40*BankNifty value.

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#10

15k to 20k is very high rate CA are available for 3-4K only

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#11

What you said is true only in case of intraday equity. In case of FnO, the buy and sell value is taken as the turnover. When the CA calculates the turnover, he simply adds all the buy and sell value. In case of intraday equity, all the profits and losses are added and calculated as turnover. I might be wrong, but this has been my experience. I have consulted 3 CAs and all said the same.

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#12

Come to think of it, the stock market transactions are the most transparent than any other business. These are known to the govt as and when it happens!
So the additional tax audit requirements are unnecessary.

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#13

Depends on the volume of transactions. Also, most CAs wrongly think that you have made quite some money looking at the turnover!

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#14

Most CAs don’t have an idea of the leverage that is provided to us by the broker( specially in MCX) and hence they start thinking something else.

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#15

What It wants is business turnover… not contractual turnover.

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#16

Not so much as it was being dreaded! Thanks for clarification.

#17

Hey !

The trading transactions are treated differently under Income Tax. The calculation of turnover from the transactions, calculation of tax amount and checking the applicability of tax audit are different for every situation.

  1. Income Head - Options trading is considered as a business income under income tax

  2. Tax Calculation - Tax is to be paid at slab rates as per income tax act. In your case, there is a loss of Rs.18,000 and thus you are not required to pay tax if you do not have any other income

  3. Carry Forward Loss - You can carry forward the loss for 8 years. It means that the loss of Rs.18,000 can be set off against profit earned in future

  4. Calculation of Turnover

    There is a concept of absolute profit under income tax. It is the sum of all positive and negative differences from all trading transactions. Eg: Profit from transaction 1 is Rs.10,000 and loss from transaction 2 is Rs.15,000

    Realised Profit = Rs.10,000 - Rs.15,000 = Loss of Rs.5,000
    Absolute Profit = Rs.10,000 + Rs.15,000 = Rs.25,000
    Turnover of options trading = Absolute Profit + Sales

  5. Tax Audit applicability

  • If the turnover is less than Rs.1 Cr, tax audit is not applicable

  • If the turnover is more than Rs.1 Cr, check following 2 conditions

    1. Turnover is upto Rs.2 Cr
    2. Realised Profit is more than or equal to 6% of Turnover

If both the above conditions are fulfilled, audit is not applicable
If either of the above condition is not fulfilled, audit is applicable

If you need any further assistance, write to me on sakshi.shah@quicko.com

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#18

What is Charges for TAX audit for F&O transactions ?
What all things are required for Audit ?

#19

Amazing post Sakshi , Thanks for details ,In above example can you throw some light on:

Turnover = Absolute profit + sales

what is “sales” ? can you give example ?

#20

hi there, i’m a student and i traded some(maybe around 200-300) usdinr lots in a month and the turnover is way above 2 crs. what should i do now? do i’ve to file itr and yes i don’t have any other income and in above scenario i was in net loss.