Calculation of Trading Turnover from Trading Income

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Sakshi Shah

income from trading
Income Tax
Last updated on August 23rd, 2022

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

There are two methods for calculation of trading turnover – Tradewise method and Scripwise method. Ideally, tradewise method is the correct way of calculating turnover. However, 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

Absolute Profit means the sum of positive and negative differences. 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:

Scripwise Turnover

Absolute Profit means the sum of positive and negative differences. 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:

Method of Trading Turnover Calculation for Tax Audit Applicability

To determine the applicability of Tax Audit, below are the examples for calculation of turnover for different types of trading.

Calculate Trading 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 = INR 650

Calculate Trading Turnover for Equity Delivery Trading

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 Intraday Trading = Absolute Profit

Tradewise Turnover = 280 + 1260 = INR 1540

Scripwise Turnover = -980 = INR 980

Calculate Trading 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 = 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.”

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 for equity intraday trading, calculate the trading turnover i.e. absolute profit. Absolute Profit means the sum of positive and negative differences. Check if tax audit is applicable as per Section 44AB after calculating the trading turnover.

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 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 the methods, the turnover amount will vary but the amount of profit/loss remains the same.

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: