HomeGreater Than Icon
Knowledge BaseGreater Than Icon
DerivativesGreater Than Icon
How to Calculate F&O Turnover

How to Calculate F&O Turnover

Open Demat Account

*By signing up you agree to our Terms and Conditions

In the world of finance, for investors who aim to diversify their portfolios and manage risk, a popular choice for them is Futures and Options (F&O) trading. However, understanding how to calculate F&O turnover is important for tax purposes, and assessing trading performance. Understanding F&O turnover calculation is crucial for making wise decisions in the market, regardless of your experience level. With this blog, understand the calculation of F&O turnover and its importance in evaluating trading activities.

What is Futures and Options

The two main categories of stock derivatives traded on a share market are futures and options. These are agreements between two parties for the future exchange of stock assets at a defined price. By fixing the price in advance, these contracts attempt to reduce the market risks associated with stock market trading.

In the stock market, futures and options are contracts whose prices are based on an underlying asset (often referred to as an underlying), which can include shares, stock market indexes, commodities, exchange-traded funds (ETFs), and more. Basics of futures and options allow investors to lower future risk by using predetermined pricing. However, since price swings have no predictable direction, a wrong market prediction might result in significant gains or losses. People who are familiar with how a stock market works usually make the majority of these deals.

Trade like a pro in NSE F&O with Zero Brokerage*

* By signing up you agree to our Terms and Conditions

Table of Content

  1. What is Futures and Options
  2. What is F&O Turnover
  3. How to Calculate F&O Turnover?
  4. Example to Calculate Turnover for F&O Trading
  5. F&O Losses and Tax Audit
  6. Turnover vs. Audit Requirement:

What is F&O Turnover

In the world of finance, “turnover” signifies the overall business activity within a defined period. Just as a shopkeeper calculates their turnover based on monthly sales, in Futures and Options (F&O) trading, turnover represents the cumulative value of all transactions conducted, encompassing both gains and losses.

F&O turnover includes all the income derived from F&O trading, accounting for both profits and losses incurred along the way. To arrive at an accurate assessment of F&O turnover, it's imperative to deduct all associated expenses, including broker commissions, rent, and utility bills, from the income. This meticulous calculation unveils the true magnitude of F&O turnover, which could swing either positively or negatively, contingent upon the magnitude of profits and losses realised.

How to Calculate F&O Turnover?

Here is how to calculate f&o turnover for income tax: 

F&O Turnover = Absolute Profit + Absolute Loss + Premium Received on Sale of Options

Where, 

  • Absolute Profit: Sum of profits realised from closing out F&O positions
  • Absolute Loss: Sum of losses realised from closing out F&O positions
  • Premium Received on Sale of Options: Total premiums received from selling options contracts

Example to Calculate Turnover for F&O Trading

Here is an example to make you understand how to calculate F&O turnover: 

Script NameTransaction TypeLot SizePurchase ValueSale ValueGains/LossTurnover
HDFC BankFuture5002,0002,10050,00050,000
Asian PaintsFuture2004,2003,900(60,000)60,000
MarutiOption50050,00060,00050,00,00050,00,000
Tata MotorsOption50025,00023,000(10,00,000)10,00,000
Total  81,20089,000  39,90,00061,10,000

 

Note - Please note that the values presented in the table below are for reference purposes only and do not reflect real data.

For Futures & Options (F&O) trading, turnover is determined by the total sum of profits and losses incurred from transactions. The calculation disregards the total value of contracts traded but focuses solely on the net outcomes of trading activities, encompassing both favourable (profits) and unfavourable (losses) discrepancies, which are treated as turnover. You can also use the brokerage calculator to accurately determine your F&O turnover costs.

F&O Losses and Tax Audit

In the realm of trading, understanding the tax implications of your transactions is crucial. Here's a breakdown of F&O turnover reporting and tax audit requirements to keep you informed:

  1. Turnover Reporting:

    Regardless of whether your F&O trades yield profits or losses, reporting your turnover is essential for tax compliance. It provides tax authorities with a comprehensive overview of your earnings (or losses), ensuring fair taxation.

  2. Tax Audit:

    If your annual turnover from F&O trading exceeds ₹50 lakh, a tax audit becomes mandatory. This thorough examination of your accounts and trading activities ensures adherence to tax regulations and financial transparency.

  3. Expenses:

    Certain expenses related to F&O trading can be deducted from your taxable income. Broker fees, trading software, and research subscriptions are examples of deductible expenses that can help lower your tax liability.

  4. Expert Assistance:

    Consider seeking guidance from a Chartered Accountant (CA) to ensure compliance. A CA can assist with financial statements, tax audit reports (Form 3CD), and filing Income Tax Returns (ITR) accurately.

Turnover vs. Audit Requirement:

Trading TurnoverAudit Requirement
Up to ₹2 croreAn audit is required if profit or loss is less than 6% of turnover. If profit constitutes 6% or more, no audit is necessary.
Between ₹2 crore & ₹10 croreAudit mandated if profit or loss is less than 6% of F&O turnover. If profit under the presumptive taxation method exceeds 6%, an audit is not needed.
Above ₹10 croreThe audit is mandatory, irrespective of profit or loss.

Staying within these guidelines ensures compliance with the tax rules and aids in effective financial planning for traders in the F&O market.

Conclusion
In conclusion, understanding F&O turnover is important for taxation as it is categorised similarly to business income. Calculating F&O turnover entails summing up all earnings and deducting expenses associated with F&O trading. Mastery of this calculation holds significant weight as it directly impacts your tax obligations. You can download an online trading app to start your trading journey in the share market. 

Get Zero Brokerage* on NSE F&O trades

*By signing up you agree to our Terms and Conditions

How to calculate f&o turnover FAQs

To show the F&O turnover in your Income Tax Return (ITR), one can use the trading statement provided by your broker, which typically outlines the details of your F&O transactions.

F&O turnover for tax audits follows the same formula as mentioned earlier, incorporating absolute profits, absolute losses, and premiums received on the sale of options.

The turnover limit for option trading varies depending on individual tax jurisdictions.

If F&O losses reach the predetermined threshold established by tax authorities, a tax audit becomes compulsory. 

Futures contracts obligate the parties involved to buy or sell the underlying asset at a predetermined price and date. Whereas options provide the holder with the right, but not the obligation, to buy or sell the asset at a specified price within a specified period.