EQUITY & DERIVATIVE – TURNOVER AND TAXABILITY

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 TRADINGCALCULATION OF TRADING TURNOVERTAXABLE UNDER THE HEAD             RATES
Equity Trading Intra-dayAbsolute Profit/Loss [Sale price – Buy price]Speculative Business IncomeRespective Slab Rate
Futures – Equity, Commodity, CurrencyAbsolute Profit/Loss [Sale price – Buy price]Non-Speculative Business IncomeRespective Slab Rate
Options – Equity, Commodity, CurrencyAbsolute Profit/Loss* + Premium received from Sale of OptionsNon-Speculative Business IncomeRespective Slab Rate
Equity Delivery** Trading & Mutual Fund TradingTotal Sales Value of
Shares/ Mutual Fund
Capital GainLTCG@10%
STCG @15%  
Debt Funds***Total Sales Value of Debt FundCapital GainLTCG@20% with indexation
STCG @ respective slab rate
Hybrid FundsIf:
Equity Oriented > 65% = Equity
Debt Oriented > 60% = Debt
Capital GainRespective 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:

PARTICULARSCALCULATIONAMOUNT
Profit on Sale of Shares500 * (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:

PARTICULARSCALCULATIONAMOUNT
Profit on Sale of Futures500 * (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:

PARTICULARSCALCULATIONAMOUNT
Loss on Sale of Options A500 * (80-77)1,500
Premium on Sale of Options A500 * 7738,500
Profit on Sale of Options B250 * (62-60)500
Premium on Sale of Options B250 * 6215,500
Total Turnover56,000

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:

PARTICULARSCALCULATIONAMOUNT
LTCG on Sale of Equity Share A500 * (87-80)3,500
STCG on Sale of Equity Share B250 * (62-60)500
Total Capital Gain4,000

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.

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