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Calculation of Trading Turnover from Trading Income

author portrait

Sakshi Shah

income from trading
Income Tax
Last updated on October 11th, 2021

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 should calculate Trading Turnover for such income. It is important to note that tax liability does not depend on Turnover. The trading turnover calculation should be done only when the income from shares is considered as a business income and not when it is considered as capital gain income.

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. To understand how it is calculated, we need to understand the meaning of Absolute Profit.

Absolute Profit for Trading Turnover Calculation

Absolute Profit means the sum of positive and negative differences. It is the sum of the absolute value of profit and loss of each trade during the financial year.

For Example:

Method of Trading Turnover Calculation for Tax Audit Applicability

Examples

Equity Intraday Trading

Equity Delivery Trading

ITR for Intraday Traders
CA Assisted Income Tax Return filing for Individuals and HUFs having income form Intraday Trading.
[Rated 4.8 stars by customers like you]
ITR for Intraday Traders
CA Assisted Income Tax Return filing for Individuals and HUFs having income form Intraday Trading.
[Rated 4.8 stars by customers like you]

Equity / Currency / Commodity Futures Trading

Equity / Currency / Commodity Options Trading

ITR for F&O Traders
CA Assisted Income Tax Return filing for Individuals and HUFs having income from F&O/ Derivatives Trading.
[Rated 4.8 stars by customers like you]
ITR for F&O Traders
CA Assisted Income Tax Return filing for Individuals and HUFs having income from F&O/ Derivatives Trading.
[Rated 4.8 stars by customers like you]

FAQs

Is Trading Turnover 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 purpose. 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 Intraday 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, calculate the trading turnover. In the case of Equity Intraday Trading, Absolute Profit is Trading Turnover. Absolute Profit means the sum of positive and negative differences. Eg: Loss from Scrip 1 is Rs. -5000 and profit from Scrip 2 is Rs. 8000, absolute profit = 5000+8000 = Rs. 13,000. If the turnover exceeds Rs. 1 Cr then tax audit is applicable.

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, calculate the trading turnover. If you are investing in Futures, Absolute Profit is Trading Turnover. Absolute Profit means the sum of positive and negative differences. Eg: Loss from Scrip X is Rs. -5000 and profit from Scrip Y is Rs. 8000, absolute profit = 5000+8000 = Rs. 13,000. If you are trading in Options, trading turnover = Absolute Profit + Premium on sale of options. If the total trading turnover exceeds Rs. 1 Cr, tax audit is applicable.

Got Questions? Ask Away!

  1. Hey @Divyesh_Patel,

    The trading transactions are treated differently under Income Tax. The calculation of turnover from the transactions, calculation of tax amount and checking the applicability of tax audit are different for every situation.

    Income Head - Options trading is considered as a business income under income tax

    Tax Calculation - Tax is to be paid at slab rates as per income tax act. In your case, there is a loss of Rs.18,000 and thus you are not required to pay tax if you do not have any other income

    Carry Forward Loss - You can carry forward the loss for 8 years. It means that the loss of Rs.18,000 can be set off against profit earned in future

    Calculation of Turnover

    There is a concept of absolute profit under income tax. It is the sum of all positive and negative differences from all trading transactions. Eg: Profit from transaction 1 is Rs.10,000 and loss from transaction 2 is Rs.15,000

    Realized Profit = Rs.10,000 - Rs.15,000 = Loss of Rs.5,000

    Absolute Profit = Rs.10,000 + Rs.15,000 = Rs.25,000

    Turnover of options trading = Absolute Profit + Sales

    Hope this helps :slight_smile: