Answer

ITR

Calculating F&O turnover for tax audit

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  1. Facts

    Under the ICAI Guidance Note on tax audit, F&O turnover is the total of favourable and unfavourable differences, that is the absolute sum of profits and losses on each trade. Contract value is not turnover, and option premium is not added after the 2022 revision.

  2. Provisions and law

    • Sec 44AB, Income-tax Act 1961 (now Sec 63, Income-tax Act 2025)Tax audit if business turnover exceeds ₹1 crore (₹10 crore if cash receipts and payments are each within 5%), or professional receipts exceed ₹50 lakh
    • Sec 43(5), Income-tax Act 1961Defines speculative transactions; derivatives on recognised exchanges are not speculative (2025 Act number to be confirmed)

  3. Analysis

    Example: 200 trades with total profits of ₹6 lakh and total losses of ₹8 lakh give turnover of ₹14 lakh, not the ₹5 crore of contract value. This number decides whether a tax audit is needed. Keep the trade-wise working, because AIS may show larger figures that you will need to explain.

  4. Conclusion

    1. Download trade-wise P&L from the broker
    2. Add the absolute value of each profit and loss
    3. Report turnover in the ITR-3 schedule
    4. Keep the working for any query

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