Turnover calculation for option traders to determine tax audit u/s 44AB

Finally, some good news for options traders as the Institute of Chartered Accountants of India (ICAI), in its recent guidance note, has clarified the meaning of turnover for options writers. Here’s a comparison of the new meaning with the erstwhile:

Consequent to the above change, the premium received will now be considered only once, i.e. for determining net profit. Earlier, the premium was considered in both points (i) and (ii) above.

For better comprehension, consider this example: 

Trades Purchase Value Sales Value Gain / (Loss) Turnover 
(1) (2) (3) (4)=(3)-(2) (5) =(4)
Call Option 2,00,00,000 3,00,00,000 1,00,00,000 1,00,00,000
Put Option 55,00,000 52,50,000 (2,50,000) 2,50,000
Call Option sold/written (Not squared off) 15,00,000 15,00,000
Total 27,50,000

Here’s a quick brief on tax audit applicability for option traders:

Turnover up to Rs. 2 Cr

  • If you have incurred a loss or the profit is less than 6% of turnover and, other total income is more than the basic exemption limit, a Tax Audit is applicable.
  • If you have a profit of 6% or more of the turnover, Tax Audit is not applicable.

Trading Turnover is more than Rs. 2 Cr but up to Rs. 10 Cr

  • If you have incurred a loss or the profit is less than 6% of turnover, the Tax Audit is applicable.
  • If the taxpayer has a profit of 6% or more of turnover and does not opt for the Presumptive Taxation Scheme of Sec 44AD, then Tax Audit is applicable.
  • If you make a profit of 6% or more of turnover and opt for the Presumptive Taxation Scheme under Sec 44AD, Tax Audit is not applicable.

Trading Turnover is more than Rs. 10 Cr

Tax Audit is applicable regardless of the profit or loss.

For any clarifications/feedback on the topic, please contact the writer at ektha.surana@clear.in

You May Also Like

Save Your Tax By Claiming Medical Expenditure Under Section 80D

The current financial year is near to end on 31st March. You…

Senior Citizens: PMVVY or SCSS investment scheme, which one is best?

Due to a fall in the interest rates offered on fixed deposits…

EPFO lowers the interest rate on PF deposits to 8.5% for FY 2019-20

The Employees’ Provident Fund Organisation (EPFO) has notified the interest rate for…

Pensioners Who Opted for Commutation To Receive Higher Pension

According to a notification sent by the labour ministry dated 20 February…