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How to Calculate Turnover for F&O Trading

29 March 2022
4 minutes

There has been a surge of investors in the market over the past two years, especially after the onset of the coronavirus pandemic. From a mere 3.5 crore demat accounts in FY 2018-19, the number of demat accounts in India has jumped to is more than 8.5 crores as of February 2022. Of these, a significant number of investors entered the derivatives market apart from the quintessential equity market.

The Futures and Options market in India has become one of the newest avenues for investors who have been wanting a bigger piece of the stock market pie. To sweeten the interest of F&O investors, the expiry day of the January series saw the F&O turnover in the Indian markets crossing the Rs 200 lakh crore mark.

The F&O frenzy in India has gripped investors strongly. However, a lot of investors and traders who are new to the derivatives market are unaware about the taxation on gains made in the derivatives market, or are unsure about how the process works.

In this blog, we will understand how you can calculate your F&O turnover to be able to calculate the taxes you owe to the Government on the same.

What is F&O Turnover

Firstly, it is important to understand that trading in Futures and Options is considered as a business by the tax authorities. Consequently, the income you get from trading in F&O is considered as income from business. Thus, the gains you make in the derivatives market will be taxed just how they are taxed for a business.

However, to do this, you need to calculate your F&O turnover.

F&O turnover can be described as the total income from F&O trading which takes into account all the profits and losses. To get an accurate estimate of the F and O turnover, all expenses incurred by you in the process of trading in F&O like broker commission, rent, bills, etc. must be deducted from the income. As a result, the F&O turnover can be negative or positive based on the scale of profits and losses made.

How to Calculating F&O turnover

Firstly, take into account all the favorable and unfavorable transactions made while trading in F and O.

For example, in a particular financial year, a person made the following transactions, based on which the turnover for the same has been calculated:

Name Type of Transaction Lot Size Value of Purchase Sale Value Gain/ (Loss) Turnover
HDFC Bank Future 400 5,000 5,100 40,000 40,000
Asian Paints Future 500 4,000 3,900 (50,000) 50,000
ICICI Bank Option 600 6,000 6,500 500 7,000
HUL Option 600 4,500 3,700 (800) 4,500
      19,500 19,200 (10,300) 1,01,500

Also Read: What is Futures and Options

Let us understand what happened here:

  1.     The turnover of all futures transactions was calculated in absolute terms.

We multiply the purchase value by the lot size and then multiply the sales value by the lot size. The difference between this gives us the profit or loss, which is the turnover.

For 400 lots of HDFC Bank purchased at 5,000 and sold at 5,100, the profit/ (loss) of 40,000 is the turnover. Similarly, for 500 lots of Asian Paints purchased at 4,000 and sold at 3,900, the profit/ (loss) of 50,000 is the turnover.

  1.     The turnover of all options transactions is not calculated in absolute terms. It has been calculated as:

Sale value + absolute profit/ (loss)

Thus, for 600 lots of ICICI Bank purchased at 6,000 and sold at 6,500, the profit made was 500. Adding the sales value of 6,500 to this, the turnover is 7,000.

Similarly, for 600 lots of HUL purchased at 4,500 and sold at 3,700, a loss of 800 was made. Adding 800 to the sales value of 3,700, the turnover comes out to be 4,500

Also Read: How to Trade in F&O

Now, the final turnover on all these transactions made in a portfolio was calculated by adding all the turnovers of all transactions. Therefore, the final turnover for all the transactions will be 1,01,500.

After calculating the turnover simply based on the transactions, we now have to take into account the expenses and deduct them from the turnover.

You can add all the electricity expenses, STT, commission paid to brokers, internet and rent payments, etc. to calculate the final expenses.

Let’s assume the final expenses were pegged at 5,000.

So, the turnover will be:

1,01,500 – 5,000 = 96,500

Therefore, the final turnover of the portfolio above is 96,500.

The takeaway

It must be noted here that the turnover for futures and options are calculated differently. Calculating the correct turnover is essential to calculating the accurate tax that you owe on the transactions. Any error in calculating the right turnover can mean inaccurate tax payment which may make you liable for penalty. 

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