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Calculation of Trading Turnover from Trading Income
income from trading
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.
Trader buys 400 units of Scrip 1 at Rs.100 on 25/01/2020
Trader sells 400 units of Scrip 1 at Rs.90 on 26/01/2020
Trader buys 200 units of Scrip 2 at Rs.45 on 25/01/2020
Trader sells 200 units of Scrip 2 at Rs.50 on 26/01/2020
Loss from Trade 1 = (90-100) * 400 = Rs. -4,000
Profit from Trade 2 = (50-45) * 200 = Rs. 1,000
Absolute Profit = 4000+1000 = Rs. 5,000
Method of Trading Turnover Calculation for Tax Audit Applicability
Equity Intraday Trading
On 25/10/2018 you buy 5 shares of Britannia at Rs. 5390 and sell them on the same day at Rs. 5350. Loss = (5350-5390)*5 = Rs. -200
On 24/10/2018 you buy 17 shares of RBL Bank at Rs. 483 and sell them on the same day at Rs. 488. Profit = (488-483)*17 = Rs. 85
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.