If you trade in Futures & Options (F&O), you’ve probably heard the term “Turnover” thrown around when filing your ITR. Here’s the problem: turnover in F&O has nothing to do with the “Sales” figure you see in your broker’s report. And unlike a shopkeeper, you don’t need to prepare a Trading Account.
In this article, we’ll break down how to calculate turnover, what expenses you can claim, and how to report your F&O income in ITR – step by step.
The law behind F&O income:
What the Act says
- Section 43(5) defines “speculative transaction.”
Proviso (d) excludes eligible derivative trades done on a recognised stock exchange. So F&O is not speculative. - Section 28 taxes such income under Profits and Gains of Business or Profession.
- Sections 30–37 let you claim business expenses that are wholly and exclusively for this activity.
Set-off and carry-forward basics
- In the same year, non-speculative business loss from F&O can be set off against any income other than salary.
- If there’s a loss to carry forward, file the return on time under section 139(1). Then it can be set off in later years only against business income.
How to calculate F&O turnover (for audit checks)?
When traders hear “Turnover,” they often imagine the sales figure in their broker’s report. That’s not how Income Tax looks at F&O turnover.
For derivatives trading (like F&O), turnover is computed as per the ICAI Guidance Note on Tax Audit:
Formula:
Turnover = Sum of the absolute values of profits and losses from all trades
That means:
- Ignore the “+” or “–” sign in each trade.
- Add them all up.
- This number is only for deciding tax audit requirement under section 44AB.
It is not your taxable income.
Example:
- Trade 1: Profit ₹100 → absolute value ₹100
- Trade 2: Loss ₹100 → absolute value ₹100
- Turnover = ₹100 + ₹100 = ₹200
So, Even if your net result is zero or a loss, your turnover may still be a positive figure for audit purposes.
What “Turnover” means in your P&L for F&O?
When it comes to F&O, turnover is one of the most misunderstood terms. That’s because there are actually two different turnover figures depending on the purpose.
1. Turnover for audit purposes
- Definition (ICAI method): Sum of the absolute values of profits and losses from all trades.
- Purpose: To check whether a tax audit is required under Section 44AB.
- Example:
Profit ₹100 → absolute value ₹100
Loss ₹100 → absolute value ₹100
Audit turnover = ₹100 + ₹100 = ₹200 - This figure does not go into your ITR’s P&L as sales or revenue.
2. Turnover (or revenue) in your P&L for ITR
- Definition: Your net trading result from all F&O trades before deducting expenses.
- If profits exceed losses, it’s a positive turnover figure.
- If losses exceed profits, it will be negative and shown as “Gross Loss” in the P&L.
- This is the figure you report in ITR as your business gross receipts for F&O.
Why they’re different?
- Audit turnover is a compliance number to check audit applicability – it’s calculated using absolute values and ignores plus/minus signs.
- P&L turnover reflects the actual trading performance – it’s calculated using normal arithmetic (profits minus losses) so it shows your real business size and margin.
How to prepare your F&O P&L for ITR
Step 1: Calculate net trading result
From your broker’s annual statement, add up all profits and losses with signs:
Example: ₹100 profit + (₹–100 loss) = ₹0 net.
This ₹0 is your P&L turnover (gross receipts).
Step 2: Deduct expenses
Claim all expenses wholly and exclusively for trading under Sections 30–37, such as:
- Brokerage charges
- Exchange transaction fees
- GST on brokerage
- Stamp duty / SEBI fees
- Internet and trading software charges
- Research/advisory fees
- Audit fees (if applicable)
- Depreciation on computer/laptop used for trading
- Bank charges related to trading account
Step 3: Arrive at net profit or loss
Net Trading Result – Total Expenses = Net Business Result.
How to report F&O income in ITR
When filing ITR-3 for F&O trading:
- In the Balance Sheet & P&L section:
- Gross Receipts / Turnover = P&L turnover (net trading result before expenses).
- Expenses = All allowable trading expenses under Sections 30–37.
- Net Profit/Loss = Gross Receipts – Expenses.
- In “Other Information” (if applicable):
- Audit turnover (absolute profits + losses) only if you need to show compliance for tax audit checks.
- Head of Income:
- Show under Business or Profession → Non-speculative business income.
- Loss carry-forward:
- If you have a loss, file the return within the due date to carry it forward and set it off against future business income.
F&O turnover is a tricky concept because there are two definitions:
- Audit turnover = sum of absolute profits and losses (for tax audit check only)
- P&L turnover = net trading result before expenses (for ITR reporting)
Mixing them up can lead to inflated figures, wrong tax audit decisions, and messy ITRs.
Keep them separate, prepare your P&L the right way, and always claim eligible expenses to reduce your taxable income.
Need Expert Help?
Correctly calculating F&O turnover and preparing your ITR isn’t just about filling numbers – it’s about showing them in the right place, the right way. We assist traders in:
- Preparing accurate F&O P&L statements
- Checking audit applicability under Section 44AB
- Filing ITR-3 with correct turnover, expenses, and carry-forward of losses
Get in touch before the deadline to avoid penalties and keep your trading tax-compliant.