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Calculation of Turnover in case of
Derivatives, Futures & Options

(To find out the applicability of Tax Audit u/s 44AB)

Calculation of turnover of derivatives and F&O trade is a debatable issue and there comes confilicting views many a times. The interesting part is; there is no clarification by Income Tax department about the calculation of derivatives turnover till now. So there can be some differences in reaching the final turnover of derivatives for Tax Audit purposes.

Presently turnover is calculated following the method prescribed in the Guidance note of Tax Audit U/s 44AB issued by ICAI (Institute of Chartered Accountants of India). This Guidance Note at Point 5.14, part (b) guides about the calculation of turnover of derivatives, futures & options.

Derivatives and F&O transactions are completed without delivery of shares or securities. These are also squared up by payment of differences. The contract notes are issued for the full value of the asset purchased or sold but entries in the books of account are made only for the differences. The transactions may be squared up any time on or before the striking date. The buyer of the option pays the premium. The turnover in such types of transactions is to be determined as follows:
  1. The total of favourable and unfavourable differences shall be taken as turnover. 
Aggregate of both positive as well as negative differences will be taken together to calculate turnover in case of derivatives, futures & Options transactions. Or in simple words both profits and losses will be added to calculate the turnover.
  1. Premium received on sale of options is also to be included in turnover. 
  1. In respect of any reverse trades entered, the difference thereon, should also form part of the turnover.

Lets get more clarity with the help of an example-

Futures Trade:
If 3000 units (2 lots; Lot size1500 units) of futures of Tata Motors are bought at Rs. 400 and sold at Rs. 410, the positive difference of Rs.30,000 (10*3000) will be the turnover for tax purposes.

Options Trade:
In case of options trade, suppose call of 2 lots or 3000 units of Tata Motors are bought at Rs. 140 and sold at Rs. 135 the turnover will be calculated in two parts.
  • Firstly the loss (140-135=5) of Rs.15,000 (5*3000) will be negative difference and added to total turnover.
  • Secondly the premium received on sale ie. Rs. 135*3000 = 405000 being premium received on option will also be added to turnover.
  Hence in this example of Futures & Optios trading Total Turnover will be:
Profit in Futures trade  Rs.   30,000
Loss in Options trade  Rs.   15,000
Premium received on sale of Options  Rs. 405,000
Total Turnover
Rs.  450,000

The methodology as explained above  to calculate the turnover of derivatives transactions is applicable for determing the applicability of TAX Audit u/s 44AB.

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