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 gains income.
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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:
- Trade 1
- 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
- Trade 2
- 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
- Absolute Profit
- 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
Examples
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
- Trading Turnover = Absolute Profit = 200+85 = Rs. 285
Equity Delivery Trading
- On 14/11/2018 you buy 2 shares of Britannia at Rs. 5855 and sell them on 26/11/2018 at Rs. 5995. Profit = (5995-5855)*2 = Rs. 280
- On 14/02/2019 you buy 9 shares of Hindustan Unilever at Rs. 1784 and sell them on 18/03/2019 at Rs. 1697. Loss = (1698-1784)*9 = Rs. -774
- Trading Turnover = Sales Value = 2(5995)+9(1697) = Rs. 27,263
Equity / Currency / Commodity Futures Trading
- On 17/01/2019 you buy 75 units of Bank Nifty Futures at Rs. 10,922.95 and sell them on 18/01/2019 at Rs. 10,893.35. Loss = (10893.35-10922.95)*75 = Rs. -2220
- On 05/04/2018 you buy 40 units of Bank Nifty Futures at Rs. 24,624 and sell them on the same day at Rs. 24851.7. Profit = (24851.7-24624)*40 = Rs. 9,108
- Trading Turnover = Absolute Profit = 2220+9108 = Rs. 11,328
Equity / Currency / Commodity Options Trading
- On 11/09/2019 you buy 80 units of Bank Nifty Options at Rs. 28.45 and sell them on the same day at Rs. 51.8. Profit = (51.8-28.45)*80 = Rs. 1,868
- On 12/09/2019 you buy 40 units of Bank Nifty Options at Rs. 134.2 and sell them on the same day at Rs. 105.25. Loss = (105.25-134.2)*40 = Rs. -1,158
- Trading Turnover = Absolute Profit + Sales
- Absolute Profit = 1868+1158 = Rs. 3,026
- Sales = 80(51.8) + 40(105.25) = 4144 + 4210 = Rs. 8,354
- Trading Turnover = Absolute Profit + Sales = 3026 + 8354 = Rs.11,380
FAQs
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.
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.
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.
you have good knowledge of subject very cleary answered
If I have purchase in commodity 1 lot (100 unit) @ 45000 & sale @ 45600 on intraday. What is my turnover for the same
Turnover in case of Commodity Trading for Futures = Absolute Profit
Realised Profit = Rs.600
Turnover = Absolute Profit = Absolute values of profit and loss = Rs.600
Note: You must consider all the transactions to calculate turnover.
If total buy value 85 lac
Sell value 85. 3 lac
Total trade value 1.73 cr
TURN over intraday 30 k
Net profit 24 k
Is i require the audit?
Is i have to file ITR
Based on your data, Tax Audit as per Income Tax Act is not applicable since the turnover is up to Rs. 1 Cr and profit is more than 6% of turnover. For any further queries, write to us on help@quicko.com
Hi Sakshi Mam
im a grad student, this year i made profit around 10 lakh in Intrday and loss of 2 lakh.
SO my total Turnover is 12 Lakh…. Do i have to pay Advance tax ?
You can set off the loss of 2 lacs against the Intraday Profit of Rs.10 lac. In that case, the total income would be Rs.8 lac. Since it is more than the basic exemption limit, you must pay the Advance Tax since the tax liability would exceed Rs.10,000.
Summary:
1. Calculate Total Income = Gross Total Income – Deductions
2. Calculate Tax Liability
3. If Tax Liability exceeds Rs. 10,000, you must pay advance tax to avoid interest and penalty
4. Pay Advance Tax Online
Hi, I want to ask you that turnover calculation in which audit is required for example if turnover is 2 crore or profit is less than 6% of the turnover.
So it is only applicable to F&O Nse cash Intraday, MCX or it is also applicable to STCG AND LTCG. Because as we know In STCG we take sell-side value, not the absolute profit.
Hey Amit,
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 gains income.
Hi Sir/Madam
I am new to trading can anyone is please clarify my below query.
Intraday:
———
Total buy Value : 11409009.03
Total Sell Value : 11418705.23
Short Term Trades
——————
Total buy Value : 496553.59
Total Sell Value : 494719.24
How to calculate the turnover?
buying values crossed 1cr am i applicable for tax audit ?
Hey Praveen,
Equity Intraday is a Non-Speculative Business Income. Trading Turnover is the Absolute Profit i.e. sum of absolute values of profit and loss. It cannot be calculated using the total buy and sell value.
If equity delivery trading is considered as Capital Gains, trading turnover is not required to be calculated. However, if it is considered as a Business Income, the trading turnover is the Sales Value.
If you can drop in your contact details at help@quicko.com, one of our agents would get in touch with you to resolve your questions.
Thank’s Anushka
I am a govt employee .i have done intraday trading in year 2019-20,because of i didn’t know the rule .is there any problem in filing tax return.?
Hi Nitin,
The CSS rules prohibit a government employee to engage in intraday trading since it considered to be speculative in nature. You must check the provisions of the relevant Act. As per the Income Tax Act, such income is considered to be Speculative Business Income. You must prepare and report financial statements and file ITR-3.
Hi,
I am a salaried individual (gross = 10.00 lakhs) and had bought 1 lot (75) in Nifty Options at Rs. 6470 and sold it the next day at a loss of Rs. 1695. I understand that i need to file ITR 3 form for AY 20-21.
The income from trading in Options derivative is considered as non-speculative income and for computation of income under section 44AD, please let me know the business code to be selected. Moreover the Gross turnover would be premium on sale of option i.e. (Rs. 4775.00) + Absolute Profit (Rs. 1695.00 i.e. loss in my case.) = Rs. 6470/-
My question is if i have incurred a loss of Rs. 1695/-, then too the presumptive income will be calculated as 6% of Gross turnover (i.e. 6% x 6470 = 389/-) and since i had incurred loss hence my profit would be less than 6% of gross turnover, will i be liable for Tax Audit
Hey Mohit,
If the turnover is upto INR 2 Cr, profit is less than 6% of turnover and total income is more than basic exemption limit, tax audit as per Sec 44AB is applicable. Turnover for Options has been calculated correctly as sum of absolute profit and premium on sale of options.
Nature of Business Code – Since there is no specific code for trading income, you can select Retail Others (09028) and provide a description as ‘Trading in F&O’. You can read more about it here – Income Tax on F&O Trading
I am a Options Scalper and trades for small profit. My Question is that If I Sold Nifty 11400 Call at Rs.150 of 1 lot of 75 and squre off it with Rs.145. My profit will be 375. But as per Income tax my turnover is 11250+375= Rs.11625 so income will be 6% of turnover that is 697.5. So it means I am doing wrong thing?
Hey Kunal,
INR 375 is the realised profit from trading. As per the Income Tax Act, trading turnover is used to determine applicability of tax audit and calculate presumptive income if the taxpayer opts for presumptive taxation as per Section 44AD. So, if you opt for Presumptive Taxation, INR 697.5 is the taxable business income and if you do not opt for Presumptive Taxation, INR 375 is the taxable business income.
Thanks for Explaining easily
Hi,
I had loss of Rs. 490596/- of trading turnover Rs. 4215374/- from f&o and equity. Please help me which ITR need to file in FY 2019-20
Hey Kuldeep,
F&O Trading is a business income. You must prepare and report financial statements and file ITR-3.
Hello madam,if my total taxable income(including profit s from trading) is less than 2.5 lakhs in that financial year then i dont need to file INCOME TAX returns irrespective of multiple Intraday and positional trading??
If the total taxable income is less than INR 2.5 Lakhs, it is not mandatory to file your income tax return. However, the income tax department has the data of all your trading activity which is also reflected in the e-Compliance portal of the income tax website. Thus, it is recommended to file the ITR and report all your income including trading activity to avoid any tax notice.
In intraday trading, Turnover through absolute profit method is calculated as scripwise or tradewise ? PLease help what’s correct as per the income tax act. Because many other articles on the internet says tradewise is more accurate than scripwise. Pls advice
Hey Krishna,
As per the Income Tax Act, taxpayer should report the tradewise turnover and not scripwise turnover in ITR. However, if the broker report provides a scripwise data, turnover is reported on scripwise basis.
Hello Madam,
I am an Individual with income less than 2 lacs. I have incurred the following loss:
1.Short term & Long term trading loss around – Rs.1.8lacs
2.Intra day trading loss of Rs. -13000 (Sales value more than 2 crores and Purchase value more than 2 crores, but absolute loss is Rs. 13000 )
So which ITR is applicable for me?
Do I need to maintain books of accounts or Tax audit will be applicable?
If so, can I choose to ignore intraday loss of Rs.13000, and report only related to Short term & long term Loss by filing ITR-2?
Hey Jhansi,
1. If you have income from intraday or F&O, it must be reported as a Business Income in the Income Tax Return. Thus, you need to file ITR-3. Check out our determine your ITR tool.
2. Books of accounts should be maintained if the income or sales exceed the prescribed limits.
3. If the trading turnover is upto INR 2 Cr and the total income is below the basic exemption limit, Tax Audit is not applicable. Use our tool to determine your Tax Audit Applicability.
Ideally, you must report all your income in the ITR. If you do not report it, there are chances of a tax notice from the department.
I am trading in F&O with ICICI direct. To calculate the turnover for tax audit applicability check, I need an statement where I can have trade wise buy value and respective trade sale value so that I can calculate the profit or loss on each specific trade and then compute the absolute profit. But I am getting no such statement where I can get the buy value linked with the sell value of the same lot in single row to calculate profit or loss at each lot or trade level. I can find daily net P&L statement for F&O or seperate buy or sell trades detail in seperate lines where it is not possible to map that which buy is against which sell.
Can somebody help me that where I can find such statement in ICICI direct site so that I can compute the turnover on my F&O trading. Thanks
Hey Manuj,
To calculate the turnover, ‘Capital Gains Statement’ will provide you with the details of buy and sale value. You can find the steps to download Holding Statement for ICICI traders in our Learn Center.
Hello mam,
How do i calculate my overall turnover as i have started doing intraday in margins.
My overall buying value is crossed more then 6.31cr and selling value is 6.33cr then pl let me know my turnover and am i applicable for audit.
Hey Veeraj,
To determine tax audit applicability you need to 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.
Check out our tool to Determine Tax Audit applicability.
Read more about Tax Audit of Trading Income on our Learn Center.
I m doing mcx intraday trading please tell how can l calculate turnover for tax
Hi Ujjwal
Multi Commodity Exchange is an exchange for trading in futures and options of commodities. For intraday trading and futures, trading turnover is considered as absolute profit. While in case of options trading, it is considered as absolute profit plus premium on sale of options.
Suppose i am doing intraday trading where in i am selling 60 lots of banknifty i.e. 1500 ce sell at premium 400 and 1500 pe sell at premium 400 in the morning and i am exiting ce and pe. at 380 each with profit of 40 points i.e. 40*1500=60000.
How much will be my turnover in this case?
Hey Dhruvan,
Turnover is considered as absolute profit (sum of the absolute value of profit and loss of each trade during the financial year) plus premium on sale of options.
Madam Sakshi,
I asked for queries on option trade in shares for turnover under section 44AD for two trades
1 sold nifty call option for rupees 10 received premium 750/- on expiry goes out of money/worthless.
2 sold nifty call option for rupees 10 received premium 750/- bought back after some days at rupees 20.
What would be turnover for both the trades individually for the purpose of 44AD, kindly reply and oblige. Thanks.
Hey Surinder,
Options turnover = Absolute Profit/loss + Sales Value
In both your cases, the turnover for the trades will be 1500/-
Hope this helps 🙂
Madam instead of replying my queries my question is removed from here no reply. My question was:
1 nifty call option sold for rupees 10 goes worthless on expiry premium 750/-
2 nifty call option sold for rupees 10
Bought at rupees 20 premium received rupees 750 and paid rupees 1500/- what would be turnover in both the trades.
Hey Surinder,
Options turnover = Absolute Profit/loss + Sales Value
In both your cases, the turnover for the trades will be 1500/-
Hope this helps 🙂
I am a housewife, doing intraday trading with small amount, getting profit/loss, when calculate the overall profit, so far it is loss around 4k in intraday, got some profit on short term trading around 15k. but not aware of any books of account. No other income for me. How tax audit will work in this case? is it mandatory to maintain books of account even my overall profit (intraday profit + shortterm profit) is less than 2.5 lakhs?
Tax Audit as per Sec 44AB(e) is applicable if there is loss or profit is less than 6% of Trading Turnover and total income exceeds the basic exemption limit.
Tax Audit is not applicable if the profit is more than or equal to 6% of Trading Turnover.
For more information, you could refer to the article of tax audit for trading income.
Hi,
My Turnover of Equity, FnO, Currency FnO and Mcx FnO all together is 2.50 crore and there is trading loss of 5 lac.
My other income is one lac in Cash and so I am below basic tax limit.
I have taken NEFT loan from my relative for this trading loss.
Do I have to go for audit ? and Can I still file return of F.Y. 2018-2019 ?
The last date to file the ITR for FY 2018-19 was 30th November, 2020. In regards to your tax audit query, please refer to the tax audit article.
I can see you guys at quico are very quick, smart and of clear thought.
I appreciate the way you are explaining things and resolving queries.
Your every single effort will pay you in millions. Period.
Hey Swanpnil, thank you for your valuable feedback. 🙂
Whether books of accounts need to maintained under section 44AA for intraday trading income or loss
Pls reply
Hello Gaurav, you need to maintain your books of accounts if:
1. Trading turnover < 2Cr, you are having losses less than 6% of your total trading turnover and if you are having income which is more than the exempt limit
2. Trading turnover is more than 5 Cr
Books of accounts needs to be maintained if income is above basic exemption limit and there are losses in intraday and delivery trading
If yes, then why books of accounts needs to be maintained if one has totally losses and infact one does not want to carry forward the losses
What is here the meaning of books of accounts
Also let us know , why there a need of audit arises if he or she has incurred losses in intraday trading and has income above basic exemption limit
Pls reply
For financial year 2018-19
Books of accounts needs to be maintained if income is above basic exemption limit and there are losses in intraday and delivery trading
If yes, then why books of accounts needs to be maintained if one has totally losses and infact one does not want to carry forward the losses
What is here the meaning of books of accounts
Also let us know , why there a need of audit arises if he or she has incurred losses in intraday trading and has income above basic exemption limit