How to Calculate F&O Turnover in a Simple Way

Investing comes in many forms, and one popular choice among traders is Futures and Options (F&O) trading. However, calculating F&O turnover can be complex, especially for beginners. Many traders struggle to understand how turnover is calculated and its tax implications. This article will break down the process in a simple and easy-to-understand manner, helping you stay informed and compliant with tax regulations.

What is F&O Turnover?

F&O turnover is not the total value of your trades but the total of your profits and losses. It helps determine if you need a tax audit and how much you must pay. Unlike stock trading, where turnover is calculated based on the buying and selling value, in F&O trading, turnover is calculated based on the absolute profit and loss from your transactions.

How to Calculate F&O Turnover?

The calculation of F&O turnover is different for futures and options. Let’s understand it step by step.

1. Turnover Calculation for Futures Trading

For futures trading, turnover is calculated by adding:

• The total of all profits made
• The total of all losses made

Example:

Imagine you made the following trades in futures:

In this case, the total turnover is:
500 (profit) + 5000 (loss) = 5,500

2. Turnover Calculation for Options Trading

For options trading, turnover is calculated by adding:

• The total of all profits made
• The total of all losses made
• The premium received when you sell an option

Example:

Imagine you made the following trades in options:

In this case, the total turnover is:
1000 (profit) + 4000 (loss) = 5,000

3. Final Turnover Calculation

Now, let’s add the futures and options turnover together:

• Futures Turnover = 5,500
• Options Turnover = 5,000
• Total Turnover = 5,500 + 5,000 = 10,500

So, your total F&O turnover is ₹10,500.

Recommended Read: Profit & Loss Calculation in F&O Trading

Why is F&O Turnover Important?

F&O turnover helps in:

1. Tax Calculation: It decides whether you need to pay tax and how much.
2. Tax Audit Requirement: You may need a tax audit if your turnover is above a certain limit.
3. Claiming Losses: You can report F&O losses and adjust them against future profits.

Tax Audit and F&O Turnover

A tax audit is required in some cases. Here’s when you need one:

1. If your turnover is more than ₹10 Crore: A tax audit is mandatory.
2. If your turnover is between ₹2 Crore and ₹10 Crore: A tax audit is needed only if you don’t maintain 6% or more profit under the presumptive taxation scheme.
3. If your turnover is below ₹2 Crore: A tax audit is required only if your total profit is less than 6% of turnover and your total income exceeds ₹2.5 lakh.

Tax on F&O Trading

F&O trading is treated as business income, not capital gains. This means:

• Profits are added to your total income and taxed per your tax slab.
• Losses can be set off against other income (except salary) and carried forward for 8 years.

If you don’t opt for the presumptive taxation scheme under Section 44AD, you must pay advance tax in four installments.

What Expenses Can You Deduct?

Since F&O trading is considered a business, you can deduct expenses such as:

• Brokerage charges
• Internet and software costs
• Subscription fees for stock market platforms
• Consultancy fees for financial advisors
• Office expenses (if applicable)

These deductions reduce your taxable income and lower your tax liability.

How to Report F&O Turnover in a Tax Return 

When filing your income tax return (ITR), you need to report F&O turnover properly. Here’s what you’ll need:

• Form 16 & Form 26AS (for income details)
• Trading account statements
• Turnover report from your broker
• Profit and loss statement
• Bank statements (if required)

You must file ITR-3, which is meant for individuals earning business income.

Recommended Read: How to Trade in F&O with Small Funds

Conclusion

Calculating F&O turnover is not difficult when you understand the basics. Just remember:

• Add all profits and losses to get the turnover.
• Tax audits are required in some cases.
• F&O income is taxed as business income and losses can be carried forward.

Keep proper records and file ITR-3 for tax purposes.

FAQs:

1. Is turnover the same as total trade value?

No. F&O turnover is the total of absolute profits and losses, not the total value of trades.

2. If I make a loss, do I still need to report turnover?

Yes, turnover must be reported even if you make a loss.

3. Do I need a tax audit if my turnover is low?

Not always. A tax audit is required only if your profit is below 6% of turnover and your total income is above ₹2.5 lakh.

4. Can I carry forward my F&O losses?

Yes. Losses can be carried forward for 8 years and adjusted against future business income.

5. Do I have to pay GST on F&O trading?

No, F&O trading does not attract GST.