Calculation of Trading Turnover

author portrait

Sakshi Shah

income from trading
Income Tax
Last updated on February 23rd, 2024

Any person having income from trading in shares and securities should report it as income from business and profession. To determine the applicability of Tax Audit as per the Income Tax Act, we need to calculate the Turnover from trading. However, It is important to note that tax liability does not depend on Turnover. Further, the calculation for turnover will be done for the future and options trading, Intraday trading and share trading considered as business.

How to calculate Trading Turnover?

The method to calculate turnover for Income Tax on trading is different for each type of trade i.e. Equity Intraday, Equity Delivery, Equity F&O, Currency Trading, Commodity Trading, etc. The trading turnover is calculated based on Absolute profits from trading.

Absolute Profit for Trading Turnover Calculation

Absolute Profit means the sum of positive and negative differences. There are two methods for the calculation of trading turnover – the Tradewise method and the Scripwise method. Ideally, the tradewise method is the correct way of calculating turnover. However, the scripwise method is widely used since it makes the turnover calculation easy.

It is important to note that the Profit/Loss shall be the same under both methods. However, there would be a large difference in the turnover calculation.

Tradewise Turnover

Under this method, absolute profit is the sum of the absolute value of profit and loss of each trade during the financial year.

For Example:

The trader has done multiple trades in one financial year, in their case the Trade-Wise trading turnover will be calculated as below:

Scripwise Turnover

Under this method, absolute profit is the sum of the absolute value of profit and loss of each scrip during the financial year.

For Example:

The trader has done multiple trades in one financial year, in their case the Scrip-Wise trading turnover will be calculated as below:

Trading Turnover Calculation for Tax Audit Applicability

To determine the applicability of Tax Audit, the turnover will be calculated for Equity, Intraday, and Future and Options trading as mentioned in the below examples.

Turnover for Equity Intraday Trading

Company Quantity Buy Date Buy Price Sell Date Sell Price P/L
Britannia 5 25/10/2021 5390 25/10/2021 5350 -200
Britannia 17 24/11/2021 4830 24/11/2021 4880 850

Trading Turnover for Equity Intraday Trading = Absolute Profit

Tradewise Turnover = 200 + 850 = INR 1050

Scripwise Turnover = -200 + 850 = INR 650

Turnover for Equity Delivery Based Trading

If the Equity delivery based trading is considered as a Business income then the turnover calculation will be as below:

Company Quantity Buy Date Buy Price Sell Date Sell Price P/L
Britannia 2 14/11/2021 5855 26/11/2021 5995 280
Britannia 9 10/02/2022 5740 10/03/2022 5600 -1260

Trading Turnover for Equity Delivery Based Trading = Sale Value

Tradewise Turnover = 5995 + 5600 = INR 11595

Scripwise Turnover = 5995 + 5600 = INR 11595

Turnover for Equity / Currency / Commodity Futures & Options Trading

Company Quantity Buy Date Buy Price Sell Date Sell Price P/L
Bank Nifty Futures 75 17/01/2022 10922 20/01/2022 10893 -2175
Bank Nifty Futures 40 05/02/2022 24624 05/02/2022 24851 9080

Trading Turnover for Futures Trading = Absolute Profit

Tradewise Turnover = 2175 + 9080 = INR 11255

Scripwise Turnover = -2175 + 9080 = INR 6905

Note: The turnover calculation for options has been updated based on the eighth edition of the guidance note dated 14/08/2022 (w.e.f A.Y 2022-23). Previously, turnover for options trading was calculated as “Absolute Profit + Premium on Sale of Options.”

Find the best plan
Find the best plan
GET EXPERT HELP
Find the best plan
Find the best plan

FAQs

Is Trading Turnover the same as Contract Turnover?

No. Trading Turnover is different than Contract Turnover.
Contract Turnover is the sum of the purchase value and sales value. It is not considered for income tax purposes. Trading Turnover or Business Turnover is the absolute profit i.e. sum of positive and negative differences. This turnover is considered to determine the applicability of the tax audit and the applicable ITR form.

I am an F&O Trader. How do I calculate trading turnover to determine the applicability of a tax audit?

To determine whether a tax audit is applicable or not for F&O trading, calculate the trading turnover i.e. absolute profit. Absolute Profit means the sum of positive and negative differences. Check if a tax audit is applicable as per Section 44AB after calculating the trading turnover.

What is the difference between Scripwise Turnover and Tradewise Turnover?

Tradewise turnover calculates absolute profit as the sum of the absolute value of profit and loss of each trade during the financial year. Scripwise turnover calculates absolute profit as the sum of the absolute value of profit and loss of each scrip (aggregate of all trades for every scrip) during the financial year. Under both methods, the turnover amount will vary but the amount of profit/loss remains the same.

Is the total sales value is same as turnover for trading?

No, for trading the turnover is not the same as the sales value. Sales value is derived as a total of all sale consideration received from trades. However, the turnover is calculated based on the absolute amount of profit and loss.

Got Questions? Ask Away!

  1. Hi @Vik

    When calculating turnover for a future contract, it is important to consider the realized profit and loss (P&L).

    In your scenario, if the contract is sold on the 10th day from the date of buying and has appeared as a loss for 9 days, you should include both the realised loss and profit on the date of sale in the turnover calculation.

    For example, you have a realised loss of ₹100 and profit of ₹300, then after calculation your turnover would be ₹400, and your Net P&L would be ₹200.

    Hope it helps.

  2. @Vik

    In this stated case, the turnover would be realized profit that is ₹10 (₹110 - ₹100). The closing price mentioned by you on the 2nd - 5th Jan are the unrealized losses which are not considered for the calculation of turnover

    Here, in your previous scenario as well the losses for 9 days has to be ignored as they’re not realized and the 10th day realized profit needs to be considered.

    Read more about Trading Turnover Calculation for Trading Income - Learn by Quicko.

    Hope this clarifies your query.

  3. Hi @Surresh

    Yes, you will be required to file ITR 3 since you will be reporting F&O & Intraday income. in your ITR.

  4. Hello @anuj_aggarwal

    Income from Futures is treated as business income. Turnover for futures is “Absolute profit or loss”.

    Also definition of turnover does not change whether you opt for presumptive taxation scheme or normal scheme.

    Hope this helps.

  5. Avatar for sann sann says:

    Hello Sir/ Maam, I’m getting different results on different websites, please clarify to me about the calculation of Options turnover not futures. Someplaces I read it is only the absolute value of P&L but at other places I read that it is Absolute Value of P&L + the sale value. Like in the example above
    Qty: 25
    Buy: 1000
    Sell: 970
    P&L: -750

    Is the turnover 750 (absolute value) or is it
    750+(25x970)=25,000 ???
    Thanks in advance

  6. Hey @sann,

    The turnover will be calculated as the sum of absolute P&L. In your example, the turnover will be 750.

Continue the conversation on TaxQ&A

8 more replies

Participants

Avatar for AkashJhaveri Avatar for Muskan_Balar Avatar for Shrutika_Shah Avatar for CA_Niyati_Mistry Avatar for Vik Avatar for Surresh Avatar for Surbhi_Pal Avatar for vsvdevan Avatar for anuj_aggarwal Avatar for sann Avatar for Paras_Nishar