Head of Income under which taxable
According to Proviso (d) and (e) of Section 43(5) of the Income Tax Act, 1961 trading in derivatives of the Securities carried out in a recognized stock exchange and trading in commodity derivatives carried out in a recognized stock exchange, respectively are not speculative transactions. Hence, trading in Futures and options would not be a speculative business but a normal business income, which could either be a net gain or net loss.
Determination of Turnover
The method for determination of turnover is not provided under the Income Tax Act, 1961. However, as per generally accepted accounting practice and as per ICAI Guidance Note on Tax Audit, it should be as follows:
• The total of favourable and unfavourable differences (Profit/Loss) shall be taken as turnover (In other words, all the differences, whether positive or negative are aggregated for calculating the turnover).
• Premium received on sale of options is also to be included in turnover.
• In respect of any reverse trades entered, the difference thereon, should also form part of the turnover.
Accounting & filing in ITR
Accounting of gains or losses in Futures & Options may be done gain-wise and loss-wise only. For example, in the example given in this document. F&O gain / loss account should be created and loss of Rs. 67500/- and gain of Rs. 135000/- should be entered in this account. It is the choice of the assessee to have a single account for gain and loss or separate account for gain and separate account for loss. While filling the data in ITR in the Profit & Loss Account, assessee should fill the loss or gain accordingly and nothing should be filled in the column of turnover. This is so, as the determination of turnover is only for the purpose of applicability of audit, TDS or any other similar purpose. Balance Sheet of only the F & O business should be filled in business head.
Audit:
Audit under Income Tax Act would be required only if the business is covered under any of the clauses of section 44AB. In case an assesses has no other business activity, then audit in case of Futures & Options would be required only where his turnover (as determined above in this document) exceeds Rs. 10 Crores in a financial year. This is so, as transactions in F&O are always through proper banking channels mainly online through RTGS / NEFT / IMPS, etc. hence as per proviso to section 44AB(a), the limit for getting the audit done would be Rs. 10 Crores
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