Why turnover method used by ITD is different for Futures and Options

The method used to calc turnover (T/O) in case of Futures is absolute_value (profit) + absVal(losses).

While the method used for options T/O is absolute_value (profit) + absVal(losses) + options_sale_value.

Why is it done differently by ITD ( income tax dept), what is the logic behind it ?

In futures, there is no interchange of cash, only the margins are blocked for taking positions.

In case of options, you are actually paying/receiving cash against your trades, which is why they consider the sales figures as well.

The margins are blocked even in case of options when one sells the options.
Also isn’t there an actual cash transfer in case of futures as part of generated profit or loss?

I think you receive the premium in case of options shorting and it is cash payment by the buyer.

Yes, when there is a profit or loss in case of futures, the absolute sum of those forms a part of your turnover.

You’re right, even in case of options, margins are blocked. But, in addition to that, you also receive the premium when you sell options. This cash is credited to your ledger on T+1. In fact, you can also use this cash to buy stocks, if you want. This is why ITD considers the premium received from option sales to be a part of your total turnover.

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ITD have not stated that they consider this as a turnover; it is the CAs who said this. When we sell an option, cash is credited to our account T+1, but if I square it off, then only the premium difference, may it be profit or loss, is what that is really accountable. The only scenario where sale really happens is when it expires. That is why even the CA states “premium received on sale of options” is to be included in turnover.

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Thanks, this is something new that I learned today. I was under the impression that the turnover calculation criteria was set forth by the ITD.

Thanks, but the question is what is the logic behind doing so. As a taxpayer or pure options trader it may impact me as this bloats up the turnover which is not the case with futures.hence if an options trader opts for presumptive taxation, he will end up paying more taxes than a furtres trader. Also it easily let’s cross the turnover limit for getting mandatory audit done.

So the option turnover is more than 10 cr?

How much quantity you trade. :grinning:

it is not about crossing the limit, one ends up paying more tax if he/she decides to opt for presumptive tax, as the min tax that should be paid will be factor of the total T/O.
Regardless of these things, what is the logic to calculate T/O differently

Select 44AD only if you’re profitable and earn more than 6%.so have you opted for 44AD previously?.

Else go with the 44AB(e) limit.