http://trak.in/tags/business/2012/07/09/tax-return-filing-futures-options-fo-trades/
above link explains turnover as below
Quote:
Turnover Calculation
Now, here comes the point calculation of turnover. Determination of turnover in case of F&O is one of the important factors for every individual for the income tax purpose. Turnover must be firstly calculated, in the manner explained below:
The total of positive and negative or favorable and unfavorable differences shall be taken as turnover.
Premium received on sale of options is to be included in turnover.
In respect of any reverse trades entered, the difference thereon shall also form part of the turnover.
Here, it makes no difference, whether the difference is positive or negative. All the differences, whether positive or negative are aggregated and the turnover is calculated.
End Quote
Can you clarify? In Zerodha it includes one leg price also
Thanks.
Hello friends,
Below is what my friend explained to me. He said -- it is always better to consider a higher turnover and undergo audit then to face a scrutiny.
Trade 1 - loss = 5000 (futures)
Trade 2 - loss = 1500 (option buy and then sell)
Trade 3 - profit = 7000 (options buy and then sell)
Trade 4 - option sold at 150, lot size 25, premium received 3750
Turn over
case 1 -
option allowed to expire price of 50 or reverse trade (buy back) at 50 resulting in profitable trade
hence turn over = 5000 + 1500 + 7000 + 3750 + 2500 (100*25)
case 2 -
option allowed to expire at price of 200 or reverse trade (buy back) at 200 resulting in losing trade
hence turn over = 5000 + 1500 + 7000 + 3750 + 1250 (50*25)
Friends, if any corrections / errors do let us all know.
Enjoy,
CArnot
Hello niftychartreader,
Please note the below -
1. The total of positive and negative or favorable and unfavorable differences
shall be taken as turnover.
2. Premium received on sale of options is to be included in turnover.
3. In respect of any reverse trades entered, the difference thereon shall also
form part of the turnover.
Point 1 is very clear for futures.
Point 1 is very clear for options where you buy first and sell later.
Point 2 is very clear for option writers.
If the option expires worthless, the premium pocketed is the positive flow and hence it is part of turnover.
Point 3 is also with respect to option writing.
Premium received is positive inflow hence part of turnover.
Reverse trade (buy back or auto square off) also results in cash flow (positive or negative) and hence is part of turnover (by the logic of point 1)
For point 3 -
It makes sense when you say the net cash flow of the trade (in case of option writing and then reverse trade / buy back) should be part of turnover and the premium received should be excluded again by the logic of point 1.
i.e. 2500 for case 1 and 1250 for case 2
But then tax laws are not logical and reasoning with tax officer is totally illogical. The amount of time and efforts spent with a tax officer can be put to good use.
hence it better to consider 3750 + 2500 for case 1 and
3750 + 1250 for case 2
Hence my friend assertively advised - consider higher turnover if in doubt and go for an audit leaving nothing to doubt.
Hope it clarifies.
Again friends if my understanding is wrong, please do correct me.
Enjoy,
CArnot
I have been going thru the comments and discussions posted so far regarding calculation of turnover wrt FnO trading
The info I have gathered after discussions with CA and auditors/ consultants and TAX men .......... summarises as follows
1) In case of Futures its calculated as per total summation of losses and gains settled daily .
2) In case of Options It is Just the SALE VALUE of The Options sold ( It doesnt matter whether the option is bought first and then sold or Vice versa ) The usual rule ………………” The total of positive and negative, or favourable and unfavourable differences shall be taken as turnover; ” will apply only in case of Futures and NOT in options .
In Options you need to add the total amount ( premium ) received on selling the option .Pls note here selling does NOT mean only selling the option first and buying later ie short selling ) Even if you buy the option and then sell it ……………the amt you receive on selling the option ( after buying ) will add to the turnover .
So at the end of te financial year Total value of Options premium received on sale minus Total value of options bought will give you the profit ( or loss )
Hope this will clarify ,
Thanks
Hello shankarbobby,
Thanks for sharing the information.
You have been very lucid in explaining your points.
I however fail to understand (clearly) point no. 3 - in respect of any reverse trade entered the difference thereon shall also form part of the turnover.
Now the question is - is expiry of the option contract to be considered as a reverse trade.
If you buy first or sell first and let the option expire, the reverse trade is initiated by the exchange. Without the reverse trade the option contract cannot be closed. Hence in my understanding no matter you let the option expire (reverse trade forced by the exchange) or you enter the reverse trade yourself, the difference i.e. profit or loss of the trade will need to be added to the turnover value.
What I understand is with respect to three points for turnover is -
1. For Futures trade the sum of positive and negative differences for trades constitutes the turnover.
2. For options - no matter if you buy first or you sell first, the sell value constitutes the turnover. Ignore the buy value for an option trade.
3. For options - in case of reverse trade entered (by exchange due to expiry or by you before the expiry) the difference between the original trade and the covering trade (no matter sell first or buy first), i.e. the profit or loss on the trade is to be added to the sell value of the trade (as per point no.2) to arrive at the value of the turnover.
Please correct my understanding if wrong.
Enjoy,
CArnot
