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:
- Trade 1
- Buys 400 units of ABC Ltd at INR 100 on 25/01/2022
- Sells 400 units of ABC Ltd at INR 90 on 26/01/2022
- Trade 2
- Buys 200 units of ABC Ltd at INR 45 on 25/02/2022
- Sells 200 units of ABC Ltd at INR 50 on 26/02/2022
- 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
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:
- Trade 1
- Buys 400 units of ABC Ltd at INR 100 on 25/01/2022
- Sells 400 units of ABC Ltd at INR 90 on 26/01/2022
- Trade 2
- Buys 200 units of ABC Ltd at INR 45 on 25/02/2022
- Sells 200 units of ABC Ltd at INR 50 on 26/02/2022
- Absolute Profit
- Net Loss from Scrip ABC Ltd = -4000 +1000 = -3000
- Absolute Profit = INR 3,000
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.”
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 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.
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.
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.
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.
If a future contract is sold on the 10th day from the date of buying, and for 9 days if it is appearing as loss. while computing turnover, do we need to calculate 2 days loss also or only profit on the date of sale.pls advise
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.
In future contract if person has bought on 1st Jan at Rs 100 and sold on 6th Jan at 110. While on 2nd jan, jan 3rd, 4th jan 5th Jan, the closing price was 95,96, 97,98 respectively… then what would be turnover for tax purpose? Kindly advise… thankyou
@Vik
In this stated case, the turnover would be realized profit that is â¹10 (â¹110 - â¹100). 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.
Hi @Surresh
Yes, you will be required to file ITR 3 since you will be reporting F&O & Intraday income. in your ITR.
Hi @vsvdevan
As per the latest guidelines by ICAI, the turnover is calculated as the absolute profit/loss in case of both, futures & options. Here’s a read on turnover calculation for F&O for your reference.
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.
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
Hey @sann,
The turnover will be calculated as the sum of absolute P&L. In your example, the turnover will be 750.
Hi,
I have net profit of 2 lacs in STCG with multiple trades carried out in the financial year.(delivery based equity swing trading)
Total sell value is roughly 50 lacs throughout the financial year. I plan to declare the income under business income. Will Section 44AD be applicable to me? Will I have to get a tax Audit done?