Turnover Calculations For Shares, Options, Future & Commodity

With the rise in retail participation in equities, F&O, and commodity trading in India, it’s essential for traders to understand how turnover is calculated under the Income Tax Act, 1961 — especially for determining tax audit applicability, choosing presumptive taxation under Section 44AD, and filing the correct ITR form.

This article explains how to compute turnover for different types of trading — intraday equity, delivery-based shares, futures, options, and commodities — along with guidance on when Section 44AD can or cannot be applied.

Why Is Turnover Calculation Important?

Turnover is the key factor for:

• Determining whether a tax audit is required (under Section 44AB)
• Choosing whether you can opt for presumptive taxation under Section 44AD
• Filing the correct Income Tax Return (ITR-3 or ITR-4)

Refer to Link Taxation on Sale of Shares

 Turnover Calculation – Segment Wise

Intraday Equity Trading

• Treated as speculative business.
• Turnover = Absolute Profit (sum of all positive and negative differences).

✅ Example:

• Profit from one trade: ₹5,000
• Loss from another trade: ₹3,000
• Turnover = ₹8,000 (₹5,000 + ₹3,000)

💡 Not eligible for Section 44AD (speculative business is excluded)

Delivery-Based Share Trading

• Treated as Capital Gains or Business Income depending on intent.
• No turnover concept if classified as Capital Gains.
• If treated as business, turnover = total sales value.

✅ Section 44AD may apply only if treated as business, not capital gains.

Futures & Options (Equity or Commodity) – Non-Speculative Business

As per ICAI Guidelines:

Turnover =

• For Futures: Add absolute profit/loss from each transaction
• For Options: Add
  • Premium received on sale
  • Profit/loss on square-off

✅ Example:

• Futures P&L: +₹60,000 and -₹40,000 → Turnover = ₹1,00,000
• Options:
  • Premium received: ₹80,000
  • Loss on buying/selling: ₹20,000
  • Turnover = ₹80,000 + ₹20,000 = ₹1,00,000
• Total Turnover = ₹2,00,000

✅ Eligible for Section 44AD (non-speculative business)

Commodity Futures (on MCX/NCDEX)

• Treated as Non-Speculative Business (Section 43(5) proviso applies)
• Turnover computed similar to equity F&O:
  • Absolute value of profit/loss on futures
  • Premium received + profit/loss for options

✅ Eligible for Section 44AD if turnover < ₹2 crore and conditions met

Section 44AD – Applicability for Traders

✅ 44AD Conditions:

• Individual / HUF / Partnership Firm (not LLP or Company)
• Indian resident
• Turnover < ₹2 crore
• Declare at least 6% profit (digital) or 8% (cash)
• Not engaged in agency, brokerage, or commission business

Note: Turnover must be calculated correctly to determine eligibility. Even if eligible, you may opt-out and declare actual profit — but you must maintain books or go for audit if losses are claimed.

When Is Tax Audit Required?

 Books of Accounts – When to Maintain?

You must maintain books of accounts under Section 44AA if:

• Income > ₹2.5 lakh (for individuals)
• OR Turnover > ₹10 lakh

Required documents:

• Ledger
• P&L and Balance Sheet
• Contract notes from brokers
• Trade statements and bank records

Above Documents can be downloaded from the Broker like Zerodha, 5paisa Etc.

 Example Summary

Let’s say Mr. Sharma has the following trading activity:

Conclusion: Mr. Sharma can opt for presumptive taxation for F&O trading (if profits ≥6%) but not for intraday trades.

Conclusion

Correct turnover calculation is crucial for traders to comply with tax laws, avoid penalties, and make informed choices regarding audit and presumptive taxation under Section 44AD. While F&O and commodity trading on recognized exchanges are eligible for 44AD, intraday equity and speculative trades are not.

Traders should maintain proper records and consult a qualified CA — especially if turnover is high or losses are claimed.