How to Calculate Turnover for F&O Trading ?

28 May 2025

JM Financial Services

Futures and Options (F&O) trading already sounds complex enough. Now throw in terms like "turnover calculation" and "tax audit thresholds", and even experienced investors can start to feel overwhelmed.

But the truth is, calculating turnover for F&O trading isn’t as intimidating as it sounds. In fact, once you understand what to include and how to do the math, it becomes quite manageable—even if you aren’t a tax expert.

Whether you’re a part-time trader dabbling in options or someone regularly trading futures, understanding turnover is crucial for filing income tax returns (ITR), checking audit applicability, and staying compliant with the Income Tax Department.

What Does "Turnover" Mean in F&O Trading?

In the traditional sense, turnover usually refers to the total value of sales or the number of units sold. But in the context of Futures & Options trading, turnover has a different meaning.

According to the Institute of Chartered Accountants of India (ICAI) and Income Tax Act guidelines, turnover in F&O refers to:

The absolute profit or loss on each trade, whether positive or negative, and
Premiums received in case of options.

This is important because turnover is used to determine:

If your trading activity qualifies as a business
Whether a tax audit is required
How to report your trading income

📝 Let’s Break Down the Components of F&O Turnover

Here’s what you need to consider when calculating turnover for F&O trading:

1. Absolute Value of Profit or Loss

Add up the absolute values of all profits and losses (ignore whether they’re positive or negative).
Each transaction is considered separately.

Example:

Trade 1: Profit ₹15,000
Trade 2: Loss ₹10,000
Trade 3: Profit ₹5,000
Turnover = ₹15,000 + ₹10,000 + ₹5,000 = ₹30,000

2. Premium Received (for Options Writers)

If you write (sell) options, the premium you receive is also included in turnover.

Example:

Option Premium Received = ₹8,000
Turnover = Absolute Profit/Loss + ₹8,000

3. Reverse Trades/Speculative Squaring Off

These are intraday trades or speculative futures closed before expiry. Their profit/loss is also part of turnover.

💡 Sample F&O Turnover Calculation

Let’s say you made the following trades in a financial year:

Nifty Future Buy: Profit ₹20,000
Bank Nifty Option Buy: Loss ₹10,000
Reliance Option Sell: Premium Received ₹12,000
Reliance Option Sell: Loss on Square-Off ₹4,000

Turnover =

Absolute P/L = ₹20,000 + ₹10,000 + ₹4,000 = ₹34,000
Premium Received = ₹12,000
Total Turnover = ₹46,000

🔍 Why Turnover Matters: Tax and Audit Implications

Here’s where things get real. Your turnover plays a vital role in deciding:

✅ 1. If You Need to File ITR-3

F&O trading is treated as a non-speculative business. That means you should file ITR-3 and not ITR-2 or ITR-1.

✅ 2. If You Need a Tax Audit

You need to check audit applicability based on two conditions:

Turnover exceeds ₹10 crore in a financial year (for digital transactions)
Or, turnover is below ₹2 crore, but your profit is less than 6% of turnover and you opt out of presumptive taxation.

So yes, even if your turnover is low, a tax audit might still be required if your profits are small or you report a loss.

📌 Quick Recap:

Here’s a simple checklist:

✅ Add absolute profits and losses for all trades
✅ Add premiums received (if any) from selling options
✅ Add speculative profit/loss if intraday F&O trades were done
✅ This total = your F&O Turnover