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.
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
| Trading Type | Trading Turnover |
| Equity Intraday Trading | Absolute Profit |
| Equity Delivery Trading | Sales Value |
| Equity F&O Trading | Futures – Absolute Profit Options – Absolute Profit + Premium on Sale of Options |
| Currency Trading (Equity / Intraday / F&O) | Futures – Absolute Profit Options – Absolute Profit + Premium on Sale of Options |
| Commodity Trading (Equity / Intraday / F&O) | Futures – Absolute Profit Options – Absolute Profit + Premium on Sale of Options |
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.