Can anyone please help me interpret the Guidance Note 2023 issued by ICAI on 1st September for the purpose of calculating options turnover
I am attaching relevant portion which has changed bertween 2022 and 2023.
Review point No. 2 of attached from Guidance Note 2023
Hi @CA_HARSHIK_JAIN
As per the latest edition of ICAI’s Guidance Note on calculating the options turnover, “The total of favourable and unfavourable differences in case of squared off transactions shall be taken as turnover” - meaning, we consider the absolute sum of profits and losses of the squared-off option contracts.
Point number 2 states that in case the premium received is already included in determining the turnover net profit, then we need not consider this profit separately - so that there is no double accounting. Explaining this with an example:
Say you sold an option and received a premium of Rs. 10,000 as a premium. You bought it back and paid a premium of Rs. 8000. The net P&L here would be Rs. 2000. The premium is already part of that Rs. 2,000 (because 10000–8000 = 2000).
Here, we do not add the premium again; otherwise, turnover would be inflated (10000 + 2000).
Now, say you sold an option at Rs. 10,000, which expired worthless. There is no buy trade. The turnover here is the premium received, which is. Rs. 10,000. The net P&L is also Rs. 10,000, but you need not add it again to determine the turnover.
Zerodha’s tax P&L report accounts for these points stated by the Guidance Note while calculating options turnover.
Hey, thanks for quick response.
You have not added the 1st part of point 2 in the interpretation.
"
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."
As per my interpretation, the premium on sale of options is to be considered while calculating turnover of options and on such transactions, profit should be added again
For e.g we sale an option at a premium of Rs. 10,000 and bought the same for Rs. 8000, then Rs.2000 is the profit.
Rs. 10000 as the premium should be considered as turnover and Rs. 2000 profit should be ignored to avoid double calculation.
Also, in this matter, @nithin refered Guidance Note 2022 on this matter, in which based on the interpretation premium was not included.
But the icai amended the same point in Guidance Note 2023 which says Profit should not be included.
@Ruchi_Porwal @nithin Need more clarity on this.
Regards
CA Harshik Jain
Your example and interpretation are also not matching
In interpretation, you said profit should not be added
While in example, you are saying premium should not be added
@CA_HARSHIK_JAIN
The literal sense of 2nd point does ask us to ignore the net profit and only consider the sale premium as turnover where the premium received is included for determining net profit, the intent of the Guidance Note was to clarify that the sale premium need not be accounted in the turnover calculation.
This blogpost by Taxmann has given illustration where sale premium is not considered but only the net P&L. And the blog post is updated with the revision made in t2023 in the Guidance Note.
However, the 2nd point has an explicit mention to include the sale premium and exclude the net profit. Let us seek more clarification to validate the intent of not having to consider option’s sale premium in turnover calculation.
@Ruchi_Porwal The taxmann post is still using the language of guidance note 2022 in 2nd point of guidance note 2023
If you can please check.
Also, let us get more clarification from zerodha tax team and the @Quicko team for proper interpretation.
As every person in trading industry takes zerodha as a benchmark for their calculations and reporting
@Ruchi_Porwal If the intent of Guidance Note would have been to clarify that the sale premium need not be accounted in turnover calculation, then they would not have amended the point 2 in Guidance Note 2023 to not include net profit. They would have kept the same as in Guidance Note 2022.
Kindly clarify on this.
