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What are F&O transactions?

Futures & Options (F&O) are derivative traded in the stock market, which derives their value from an underlying asset. Two parties enters into a derivative contract where they agree to buy or sell an underlying asset at an agreed price and at agreed date.

As per Section 43(5) of Income Tax Act, 1961 Income or loss from F&O transaction is classified as Non- Speculative Business Income & the profit or loss from non-speculative(*) business is necessary to show under the head of PGBP (Profits & gains from business & profession).

(*) Non-speculative business income classified as income from regular operating business however, Speculative business involves short-term price movement e.g. trading in intraday stocks/commodities etc.

How to calculate Turnover of F&O?

  • Future Turnover = Absolute profit (Sum of profit & loss from transaction throughout the year).

E.g. ICICI Bank futures purchased at 500 & sold at 600 with a lot size of 1 of 1000 shares therefore absolute profit here is 1000*(600-500)= 100000.

However Wipro Ltd. futures purchased at 530 & sold at 490 with lot size of 1 of 500 shares therefore absolute loss here is 1*500*(490-530)=20000.

Total turnover of both example combined here is 100000+20000=120000.

  • Options Turnover = Sale value + Absolute profit/loss from transactions

E.g. ICICI Banks option purchased for 500 shares at 80 & sold at 100 therefore absolute profit here is

500*(100- 80)=1000 & turnover in this case is 1000+500*100=51000.

However Wipro Ltd. option purchased for 100 shares at 120 & sold at 100 therefore absolute profit here is

100*(100-120)=(2000) & turnover in this case is 2000+100*100=12000.

Total turnover of both example combined here is 51000+12000=63000

How to calculate Turnover of Futures & Options for Taxation

Deductible Expenses:

Expenses incurred on F&O transactions, such as transaction charges or Securities Transaction Tax (STT), can be deducted from the turnover. This helps in reducing the taxable income.

Tax Filing Requirements:

Income from F&O transactions must be reported in ITR 3. This income is taxable at the normal slab rates applicable to the individual or entity.

Also Read: 

Turnover Calculation & Taxability of Future & Options – Simplified

Future & Options (F&O) Accounting, Audit and Taxation

Futures & Options Turnover calculation (with examples)


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July 2024