Reporting Future and Options Trade in Income Tax Return:

Reporting Future and Options Trade in Income Tax Return : Futures and Options Stocks are becoming famous mechanism of trading amongst Investors. Many small traders and salaried class people are involved in Futures and option trading. Through this article we will try to explain reporting mechanism of Future and Options Trade in Income Tax Return.

Reporting Future and Options Trade in Income Tax Return

Trading in futures & options must be ideally reported as a business unless you have only a handful of trades in the financial year. This applies to small traders and salaried class individuals as well. This means ITR-3 has to be filed if one has traded in future and Options in Previous Year. Also Just like normal Business, Books of accounts are required to be maintained as per section 44A of the Income Tax Act and Tax Audit Provisions are applicable on Income earned from trading of Futures and Options if its turnover exceeds the prescribed limits. Tax Audit Applicability in case of loss in Futures & Options How to calculate Turnover limit for Tax Audit in case of Income earned from Futures and Options : In case of futures and option value of transactions is very high but the profit margin is very low. Therefore it is a very high possibility that even a small trader will cross tax audit limit due to high value of transaction. Moreover, Futures and options are transactions that are completed without the delivery of shares or securities. These are also squared up by payment of differences. The contract notes are issued for the full value of the asset purchased or sold but entries in the books of account are made only for the differences. The transactions may be squared up any time on or before the striking date. The buyer of the option pays the premia. The turnover in such types of transactions is to be determined as follows: Tax Audit Guidance Note by ICAI release: Note also clarifies Clause 44 on GST Reporting (i) The total of favourable and unfavourable differences shall be taken as turnover. (ii) Premium received on sale of options is also to be included in turnover. However, where the premium received is included for determining net profit for transactions, the same should not be separately included. (iii) In respect of any reverse trades entered, the difference thereon, should also form part of the turnover.

Example of calculation of Turnover of Futures:

For Example Mr A buys 1000 units of Futures of Company XYZ Ltd. @ Rs 210 and sells at Rs 200. He also buys 2000 units of futures of Company ABC Ltd. @ Rs 200 and sells at Rs 290. This is how his turnover would be determined:

Particulars	Calculation	Amount
Loss on sale of Futures	1000 * 10	10000 (negative ignored)
Profit on sale of Futures	2000*90	180000
Total Turnover for Tax Audit		190000

Example of calculation of Turnover of Options:

Options	Units	Buying Rate	Selling Rate	Difference	Premium Received	Turnover
(A)	(B)	(C )	(D)	[E= (B) x (D- C)]	(F= D x B)	(G)
Nifty 18200 CE	100.00	300.00	210.00	-9,000.00	21,000.00	30,000.00
Tata Power 240 PE	500.00	45.00	70.00	12,500.00	35,000.00	47,500.00
Bank Nifty 38500 CE	125.00	348.00	300.00	-6,000.00	37,500.00	43,500.00
Total Turnover						1,21,000.00

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