Been through a few articles last some days in papers and magazines regarding how to calculate the F&O turnover. One of them is this File It clearly shows how to calculate your turnover. Last year also i faced the same issue and the CA in clear tax was forcing me to do an audit. I took the help of another CA and filed my losses of just over 3 lacs without any problem. The income Tax department accepted my loss and carried it forward to the next year and the process was a breeze. I dont understand how and where this process of calculating the whole lot of sell value of all the trades done came. I can understand calculating them when somebody is selling options for premium. But why do we need to calculate the sell values when already the buy orders have taken place. This way every other guys trading volumes will be in crores and all will need an audit. Does anyone else here in this forum has this doubt??
Your FnO turnover, as the article you’ve linked indicates, is not the sell value of all the contracts you’ve sold. Its the absolute aggregate of both your gains and losses. Refer to this intra-day turnover calculation for reference.
Its considered best practice to get your books audited by a chartered accountant every year if trading/investing income is a significant part of your Total Income. There is always the off-chance that in the future your file may get scrutinized by an ITO who might not have great understanding of the markets and quiz you on multiple book treatments. Thereby causing much loss of time and energy to you. Audited books on your end will bring peace of mind.
Hopefully, this helps. Cheers,
I am also saying the same thing.All your losses and profits need to be put together. But why do we need to sum up all the sell side value of the options to calculate my turnover. If i would have collected a premium against seling those options thats a different matter. But squaring off my naked buy positions, i find it very surprising. Morever when i checked, there is hardly any tax consultant who calculates this way.
Getting audited definitely gives you a sound sleep. But i would definitely like to know what the rule book says.
Because the article published in economic times says something else and clear tax says something else.
@nithin would appreciate your views.
I don’t know if you have gone through the Varsity taxation module, here is the chapter on turnover.
The method of calculating turnover is a debatable issue and what makes it a grey area is that there is no guideline as such from the IT department. One article of great help though is the 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 23, Section 5.12 of this guidance note has a guideline on how turnover can be calculated. It says:
- Delivery based transactions
For all delivery based transactions, where you buy stocks and hold it more than 1 day and sell them, total value of the sales is to be considered as turnover. So if you bought 100 Reliance shares at Rs 800 and sold them at Rs 820, the selling value of Rs 82000 (820 x 100) can be considered as turnover.
But remember that the above calculation of turnover for delivery trades is only applicable if you are declaring equity delivery based trades also as a business income. If you are declaring them as capital gains or investments, there is no need to calculate turnover on such transactions. Also, there is no need of an audit if you have only capital gains irrespective of turnover or profitability.
- Speculative transactions (intraday equity trading)
For all speculative transactions, aggregate or absolute sum of both positive and negative differences from trades is to be considered as a turnover. So if you buy 100 share of Reliance at 800 in the morning and sell at 820 by afternoon, you make a profit or positive difference of Rs 2000, this Rs.2000 can be considered as turnover for this trade.
- Non-speculative transactions (Futures and options)
For all non-speculative transactions, the article says that turnover to be determined as follows –
- The total of favorable and unfavorable differences shall be taken as turnover
- Premium received on sale of options is also to be included in turnover
- In respect of any reverse trades entered, the difference thereon should also form part of the turnover.
Since it says premium received on sale of options, it could potentially mean for both first time short and when it is bought and sold. But this is debatable. You can take a view that only option premium received from fresh short to be considered. Almost no one (including tax consultants, ITO’s, etc) gets the concept of F&O. We haven’t seen any issue until now with the way people have calculated turnover.
On Varsity we have to take the most conservative view towards it as it is up for public scrutiny. But you can take a view that by sale of options, it means only writing side and not option bought and then sold.
As @Nithin shows on above post is also in bold means either we first sold than bought or bought and than sold no matter we have to incld sell side value + favorable / Unfavorable difference.
As it does not make any difference, like for Exp:- If we buy 1lot NIFTY 11500 CE @ 50 and than Sold at 55. So, first we PAID premium of 3750 and than Receive Premium of 4125.
Language used on RULE book satisfy both condition.