Derivative transaction

The meaning of turnover for in case of transactions in Futures and Options of shares is not defined under the I T Act In case of derivative trading-Futures and Option- the difference on which the contract is purchased or sold is important. Although the value of contract is number of contract multiplied with the shares price , yet what is actually given or taken is differential amount in contract. For example if you purchase a future contract for Rs 105 for a share having a lot of 100,you pay nothing at the time of buying a contract, yet at the time of expiry if contract , you are either gainer or loser which is determined whether there is positive or negative difference. So , for the purpose of determining the turnover in case of future and options , for the purpose of 44AB , following items should be considered to constitute turnover:- • The total of positive and negative differences , plus • Premium received on sale of options is also to be included in turnover ,plus • In respect of any reverse trades entered, the difference thereon But not the total value of contract.

If one makes a profit of `25 lakh (favourable) and books a loss of `13.5 lakh (unfavourable) in a fiscal from F&O trading, the ‘turnover’ will be `38.5 lakh (total of favourable and unfavourable differences), there is no need for a tax audit. If the turnover exceeds `1 crore, tax audit is applicable.

Turnover in case of derivatives will be the loss or profit done on each day. 

If on day 1 there is a loss of 10.00 Lacs and day 2 there is a gain of 20 Lacs then the turnover is Rs.30 Lacs for 44AB purpose.

The same needs to be disclosed in the income tax return as well

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