Calculate Turnover of Options for Tax Audit u/s 44AB

As per the new Guidance Note issued by ICAI i.e. Eighth Edition issued on 19th August 2022, Turnover calculation criteria in case of options has been changed.

Updated extract of Guidance Note:

b) Derivatives, futures and options: Such transactions are completed without actual delivery of shares or securities or commodities etc. These are squared up by receipts/payments of differences. The contract notes are issued for the full value of the underlined shares or securities or commodities etc. purchased or sold but entries in the books of account are made only for the differences. The transactions may be squared up any time on or before the striking date. The buyer of the option pays the premia. The turnover in such types of transactions is to be determined as follows:
(i) The total of favourable and unfavourable differences shall be taken as turnover.
(ii) 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.
(iii) In respect of any reverse trades entered, the difference thereon, should also form part of the turnover.

Earlier in the calculation of turnover, the premium received was in principal considered twice i.e both in point (i) and point (ii) above. The portion of the premium during the sale was already included in the total of favorable and unfavorable differences.

Let us learn it through an example:

Ms. Ritu has the following transactions in options trading:

a. Bought 1 lot of option for Rs. 1,00,000 and sold the same at Rs. 1,50,000

b. Bought 1 lot of option for Rs. 1,50,000 and sold the same at Rs. 1,10,000

As per the old mechanism turnover would be-

a. Turnover= 1,50,000(+/-)(1,50,000-1,00,000)= 2,00,000

b. Turnover= 1,10,000(+/-)(1,10,000-1,50,000)= 1,50,000

Therefore total turnover is 3,50,000/-

As per new mechanism turnover would be-

a. Turnover= (+/-)(1,50,000-1,00,000)= 50,000

b. Turnover= (+/-)(1,10,000-1,50,000)= 40,000

Therefore total turnover is 90,000/-