options trader There is a reason to be happy with the current assessment year. In a guidance note, the Institute of Chartered Accountants of India (ICAI) has stated that options traders are not required to include premium received on sales while computing turnover for taxation purposes.
As per Income Tax (IT) laws, the turnover for options trading Calculated by adding up the profit, loss and sales amount (premium received on sales) of all trades made in a year. This method of calculation significantly increases turnover for options traders and pushes turnover above 10 crore limit beyond which tax audit is mandatory. With the sale amount removed from the turnover calculation, the overall turnover for options traders will be reduced and many traders will be saved from mandatory audit requirements.
However, the sale amount should be discarded only if it has already been used to calculate profit or loss. The ICAI note clarified, “The premium received on the sale of options is also to be included in the turnover. However, where the premium received is included for determining the net profit for the transaction, the same should not be included separately.
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Hiren Bhandari, a chartered accountant based in Ajmer explained, “If an option contract is physically settled, there is no profit or loss. In such cases, the premium received on sales is to be included in the computation of turnover.”
IT rules treat income from F&O trading as business income and mandate tax audit for turnover above 10 crores if at least 95% of the total payments made on trades are done through digital mode. In cases where cash receipts exceed 5% of total payments, merchants have to undergo mandatory audit for the above business 1 crore.
Turnover on futures contracts is calculated by adding up the profit and loss (called the net profit). For options, the premium received on the sale is also added to the net profit, which has now been removed by ICAI.
The tax department is yet to amend the IT Act to include this condition.
Karan Batra, Founder, CharteredClub.com said, “In the absence of any guidance from the IT department, everyone is dependent on the guidance given by ICAI for ITR filing.
For the current assessment year, after the due date of July 31 for non-audit cases has passed, taxpayers who dabble in F&O and are yet to file ITR will have to mandatorily undergo a tax audit, Whether they follow the New Testament or the Old Testament.
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