Option trading

turnover-calculation-for-option-traders-to-determine-tax-audit

In a guidance note, the Institute of Chartered Accountants of India has said that options traders don’t have to include premium received on sale, while calculating the turnover for taxation purposes.

As per Income Tax laws, turnover for option trading is calculated by adding profit, loss and sale amount (premium received on sales) of all the trades done in a year.

 This method of computation inflates turnover for options traders significantly and pushes the turnover over the Rupees Ten crore thresholds beyond which tax audit is mandatory. With the sale amount removed from turnover calculation, total turnover for options traders will come down and save many traders from mandatory audit requirements.

However, sale amount is to be omitted only when it has been already used to calculate profit or loss. It has been clarified that the Premium received on sale of options is also to be included in turnover. However, where the premium received is included for determining net profit for transactions, the same should not be separately included.