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
|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:
|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:
|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:
|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|
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:
|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.
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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