How to Calculate F&O Turnover

In the last few years, there has been a considerable surge in futures and options (F&O) investors in India. Like any investment, taxation is a vital aspect of F&O, and any income or loss from F&O is classified as non-speculative business income. You must understand the concept and Turnover calculation methodology of F&O turnover for tax calculation.

What is F&O turnover?

Simply put, F&O turnover is the total revenue generated from trading in F&O, considering all the profits and losses. To get an accurate estimate of F&O turnover, you need to deduct each expense incurred during trading from the income generated. These expenses include the broker’s commission, rent, bills, etc. As F&O income falls under the business income category, you must use ITR 3 to report profit or loss.

How to calculate F&O turnover?

As per the Guidance Note on Tax Audit under Section 44AB of the Income-tax Act, 1961,

Derivatives, futures, and options transactions are completed without the delivery of shares or securities. These are also squared up by the 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 at any time on or before the striking date. The buyer of the option pays the premia. The turnover in such types of transactions is to be determined as follows:

(i) The total of favorable and unfavorable differences shall be taken as turnover. (ii) Premium received on sale of options is also to be included in turnover. (iii) In respect of any reverse trades entered, the difference thereon, should also form part of the turnover.

Also as clarified by ICAI for Options premium received on sale is to be included if it has not been included for determining net profit for the transaction.

F&O Turnover = Σ {Absolute (Sell Amt - Buy Value)}

There are two methods in which Turnover can be calculated and both of them can be considered for Tax filing as there is no clear guidelines on which method to opt for during Tax Filing.

Let us understand with an example.

It is crucial for you to accurately calculate F&O turnover to compute taxes and mention the same while filing your ITR returns.. Seek professional help if required.

We at Kotak Securities provide trade-wise turnover in all P&L-related statements (Realized Gain & Loss and Tax P&L) as it is the most conservative method. The trade-wise F&O P&L is attached in a separate sheet with the Tax P&L Excel, and you can reconcile using the same. For tax P&L, click here.