EQUITY & DERIVATIVE – TURNOVER AND TAXABILITY

WHAT IS F&O TURNOVER?

Computing the turnover on Futures and Options is significant for the purpose of tax filing and F&O trading is mostly reported as business income while filing tax returns. Yet, one needs to analyze their total income, which can be positive or negative value (profit or loss). Expenses like office rent, telephone expenses, broker’s commission, etc. which are directly connected to F&O business should be deducted from the income. The remaining amount would be considered as the turnover from the F&O trading.

Traders are often faced with the challenge of calculating trading turnover from Derivatives and Intra-day. So, following are the formulas, using which, we can calculate the turnover:

TYPE OF TRADING	CALCULATION OF TRADING TURNOVER	TAXABLE UNDER THE HEAD	RATES
Equity Trading Intra-day	Absolute Profit/Loss [Sale price – Buy price]	Speculative Business Income	Respective Slab Rate
Futures – Equity, Commodity, Currency	Absolute Profit/Loss [Sale price – Buy price]	Non-Speculative Business Income	Respective Slab Rate
Options – Equity, Commodity, Currency	Absolute Profit/Loss* + Premium received from Sale of Options	Non-Speculative Business Income	Respective Slab Rate
Equity Delivery** Trading & Mutual Fund Trading	Total Sales Value of Shares/ Mutual Fund	Capital Gain	LTCG@10% STCG @15%
Debt Funds***	Total Sales Value of Debt Fund	Capital Gain	LTCG@20% with indexation STCG @ respective slab rate
Hybrid Funds	If: Equity Oriented > 65% = Equity Debt Oriented > 60% = Debt	Capital Gain	Respective slab rates as per Equity and Debt Orientation

*Profit & Loss both here are taken as positive figures.

**In case of Equity Funds, if the holding period is less than one year, it would be treated as Short Term Capital Gain.

***In case of debt funds, if the holding period is less than 3 years, it would be treated as Short Term Capital Gain.

We should understand this with the help of some examples:

Case 1: If Saurabh purchases 500 quantity of Equity Shares @Rs.50 and sells at Rs.57 on the same day (intra-day). His turnover would be determined as:

PARTICULARS	CALCULATION	AMOUNT
Profit on Sale of Shares	500 * (57-50)	3,500

Case 2: If Saurabh purchases 500 quantity of Futures @Rs.600 and sells at Rs.620. His turnover would be determined as:

PARTICULARS	CALCULATION	AMOUNT
Profit on Sale of Futures	500 * (620-600)	10,000

Case 3: If Saurabh buy 500 quantities of Options A @Rs.80 each and sells them at Rs.77. and he also purchases 250 quantity of Options B @ Rs.60 and sells at Rs.62. His turnover would be determined as:

PARTICULARS	CALCULATION	AMOUNT
Loss on Sale of Options A	500 * (80-77)	1,500
Premium on Sale of Options A	500 * 77	38,500
Profit on Sale of Options B	250 * (62-60)	500
Premium on Sale of Options B	250 * 62	15,500
Total Turnover		56,000

Case 4: If Saurabh buy 500 quantities of Equity Share A @Rs.80 each and sells them at Rs.87 after 13 months. He also purchased 250 quantity of Equity Share B @ Rs.60 and sells at Rs.62 after 4 months. His turnover would be determined as:

PARTICULARS	CALCULATION	AMOUNT
LTCG on Sale of Equity Share A	500 * (87-80)	3,500
STCG on Sale of Equity Share B	250 * (62-60)	500
Total Capital Gain		4,000

Note: Equity Share A has been taken under Long Term Capital Gain (LTCG) since they have been held as investment for more than one year.

F&O LOSSES AND TAX AUDIT

Intra-day stock trading is taxable under the head Speculative income/loss. Speculative loss can be adjusted only against the speculative income. However, any unadjusted speculative loss can be carried forward up to 4 years. F&O trading income/loss is covered under Non-Speculative business income. Any unadjusted business loss can be carried forward for 8 assessment years.

Tax Audit u/s 44AB is applicable when the trading turnover exceeds Rs.1 crore, but if the taxpayer has opted for presumptive taxation scheme, the limit for turnover is Rs.2 crores.

CONCLUSION

F&O trading has turned into an appealing proposition because of the accessibility of numerous trading platforms. Taxpayers often get confused while filing taxes about the income generated by F&O trading, and it is vital to comprehend the process to ascertain F&O turnover for income tax purposes, and when tax audit is applicable.