I was checking the option turnover calculation on Q, I understand the concept of absolute sum of all profits and losses per contract, but particularly for options you have also included the total sell value, why?
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As far as turnover calculation is concerned, it is a very grey area, but if you check this guidance note for tax audit under 44AB: http://www.caalley.com/gn/30357dtc19988.pdf
It says turnover is:Â
- The total of positive and negative, or favourable and unfavourable differences shall be taken as turnover;Â
- Premium received on sale of options is to be included in turnover;
- In respect of any reverse trades entered, the difference thereon shall also form part of the turnover
So yeah, after consulting a bunch of big CA firms, we determined that it is best to declare the entire sell value of options as turnover (even though the 2nd and 3rd point is not very clear). If you declare more turnover IT department will not have an issue, it will be if  declared less. So better to be safe rather than worry about notices in the future...
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The issue raised is very genuine and specific. I do not think that it should be brushed aside under the guise of playing safe. The second point arise when one sells the option and it expires worthless (for the buyer) and accordingly seller gets the premium. It is akin to buying at zero value .Point 3 also means the same thing.
I believe the basic purpose of having some fora is to have clarity on the matter rather than add to the confusion.
In any case, the provisions of seeking Advance Rulings are extended and Zerodha shall do a service in taking initiative in the manner and seeking advance ruling in this as also in the matter of 44AD , ie whether or not the profit can be declared at the option of individual @ 8% or more of turnover (provided TO is less than Rs 100 lacs) even if the actual profit ios more than what is declared.
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yes, we are in the process of seeking advance ruling on this. Hopefully this reaches the ears of the people who write the rules right on the top, and give us all some clarity.
For options, it says: Premium received on sale of options is to be included in turnover ,but it doesn’t categorically say that it is only for short options and if it is expired at 0. If we have to go by the language, I guess it is safe to consider the entire selling value of options as turnover.
thank you Nithin and Zerodha for taking the initiative on behalf of all traders. Will advance ruling only be valid for whoever takes the opinion or be valied for everyone?
It will be valid for one who takes the opinion, but if it is a generic one like we plan to, it should help everyone.
Great. Thank you Nithin
hi Nitin - any word on advance ruling for calculation of turnover for Options? The Turnover calculations for options is ridiculous. If I trade in Deep in the money options and if I trade too frequently, the Rs. 1 Cr. limit is breached very easily. At the same time, I need to generate 8% returns on my turnover else have to go for audit. For audit, one has to maintain proper books of accounts as well as pay for audit fees thereby increasig the cost which may not be commensurate with profits generated from trading,