Calculating turnover for derivatives, speculative transactions, and multiple businesses can be complex, especially for those needing to comply with tax audit requirements under Section 44AB of the Income-tax Act, 1961. The ICAI’s Guidance Note on Tax Audit, revised in 2023, provides comprehensive instructions on determining turnover in various scenarios. This article aims to demystify the process, ensuring clarity and compliance for businesses and professionals alike.
1. How to Calculate the Turnover in the Case of Derivatives?
Derivatives, futures, and options are financial instruments where turnover determination can be complex. According to ICAI’s Guidance Note on Tax Audit under Section 44AB of the Income-tax Act, 1961 (Revised 2023), turnover in derivatives is calculated as follows:
- Squared Off Transactions: Turnover includes the total of favourable and unfavourable differences of squared off transactions.
- Options Premium: Premium received on sale of options is included in turnover. If net profit from transactions is determined including premium, do not separately include the premium.
- Reverse Trades: Differences from reverse trades form part of turnover.
- Open Positions: Turnover from transactions not squared off by the end of the financial year is considered when squared off.
- Delivery Based Settlement: Difference between trade price and settlement price is turnover. For transferor, entire sale value of underly asset held as stock in trade is turnover.
2. How to Calculate the Turnover in Case of Speculative Transactions?
For speculative transactions:
- Aggregate of both positive and negative differences is considered as turnover.
- This turnover is used to determine if tax audit is required under Section 44AB
3. How to Check the Threshold Limit if the Assessee is Carrying on Business and Profession at the Same Time? Do we need to club all the receipts against a PAN?
When an assessee has both business and profession:
- Tax audit is required if turnover/receipts from either business or profession individually exceed the prescribed threshold limit.
- Do not combine turnover from profession and business to check against the threshold limit individually.
4. How to Calculate Turnover in the Case of Multiple Businesses? Do we need to club turnover of all the businesses against a PAN?
If an assessee has multiple businesses:
- Sales turnover or gross receipts from all businesses are combined.
- Exception: If opting for presumptive taxation scheme (e.g. S. 44AD), turnover from those businesses is excluded when determining total sales turnover or gross receipts.
Understanding turnover calculation is crucial for compliance with tax audit requirements under Section 44AB. Detailed guidance from the Guidance Note on Tax Audit under Section 44AB of the Income-tax Act, 1961 (Revised 2023) helps in correctly determining turnover for various types of transactions and across multiple business activities. Always ensure to apply these guidelines accurately to avoid any tax compliance issues.
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