Short answer: turnover here is not the value of your trades. A trader with ₹4 crore of contract value on the broker statement and ₹80,000 of profit does not have ₹4 crore of turnover. The figure is built from your profits and losses, added as positive numbers, and it is usually a small fraction of what the contract note shows.
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F&O and intraday turnover: how the number is actually computed
CA K Sanjay Bhargav, Chartered Accountant, Bengaluru
Membership No. 250054 · DISA (ICAI)
Published
Why the contract value is not the turnover
Open any derivatives broker's annual statement and there will be a large number labelled turnover. It is the notional value of the contracts passed through the account, and for anyone trading a few lots regularly it reaches crores within a year.
That number has no role in the income-tax computation. It is a market statistic. The turnover that matters — the one that decides whether an audit applies — is a much smaller figure derived from your results, and the two are routinely confused. People conclude they have crossed the audit threshold, engage someone to audit a return that never required it, and pay for the privilege.
Intraday equity: speculative, and turnover is the absolute sum
An intraday equity trade is squared off without delivery. That makes it a speculative transaction under Section 43(5) of the 1961 Act — carried into the interpretation provisions of the Income-tax Act 2025. It remains business income taxed at slab rates; "speculative" governs what the losses can be set against, not the rate.
Turnover is the sum of the absolute values of the results:
| Trade | Result |
|---|---|
| 1 | + ₹12,000 |
| 2 | − ₹7,500 |
| 3 | + ₹3,200 |
| 4 | − ₹1,800 |
| Net taxable | ₹5,900 |
| Turnover | ₹24,500 |
Losses are added, not subtracted. The trader above is taxed on ₹5,900 and has a turnover of ₹24,500 — not ₹5,900, and not the value of the shares traded.
F&O: non-speculative, same principle
Exchange-traded derivatives are specifically carved out of the speculative definition, so F&O is ordinary business income under what was Section 28 and is Section 26 of the 2025 Act. The turnover principle is the same absolute sum:
| Result | |
|---|---|
| Futures — position 1 | + ₹45,000 |
| Futures — position 2 | − ₹28,000 |
| Options — settled positions | + ₹18,000 and − ₹22,000 |
| Net taxable | ₹13,000 |
| Turnover, before the premium question | ₹1,13,000 |
And here is the one genuinely unsettled point. Whether premium received on options sold is added to that figure has changed between editions of the ICAI Guidance Note on Tax Audit. On a year with ₹60,000 of option premium received, the two positions produce a turnover of ₹1,13,000 or ₹1,73,000 — which can be the difference between needing an audit and not.
Anyone telling you this is settled is working from one edition. Establish which basis your file is on, apply it consistently year to year, and keep the computation with the papers. That is worth more than picking the answer that happens to suit this year's threshold.
What the number is actually for
The turnover figure exists to answer one question: does Section 44AB — the tax audit — apply. In the Income-tax Act 2025 that is Section 63.
Two things are worth being precise about. The threshold has a lower and a higher limit, and the higher one is available where receipts and payments are substantially digital — the exact figures and the proportion move with the Finance Act, so take them for the year you are filing rather than from an article. And an audit can be required in a loss-making year: the test runs on turnover and on whether the presumptive scheme is being departed from, not on whether you made money.
Presumptive taxation under what was Section 44AD sits at Section 58 of the 2025 Act. Whether it is available and sensible for a derivatives trader is a question to settle on the facts rather than an assumption to carry — the interaction between declaring below the presumptive rate and the audit requirement is precisely where files go wrong.
The asymmetry in the losses
This is the part that costs real money, and it follows directly from the classification above:
| Set off against | Carry forward | |
|---|---|---|
| Intraday (speculation) | Speculation income only | 4 years, speculation income only |
| F&O (non-speculative) | Most heads in the same year, not salary | 8 years, business income |
Speculation losses run through what was Section 73, now Section 113 of the 2025 Act. The practical consequence: an intraday loss cannot shelter your salary or your F&O profit, while an F&O loss has considerably more room. Two traders with identical net results can face very different tax outcomes depending only on which segment produced the loss — and a return that reports both together, as many do, loses the distinction and usually the carry-forward with it.
Before the audit deadline
- Take the broker's profit and loss statement, not the turnover headline
- Separate intraday from derivatives before anything else — they are different heads and different loss rules
- Compute turnover on the absolute-sum basis for each, and record which options-premium position you have taken
- Test that against the threshold for the year, including the digital- receipts limb
- Check the presumptive interaction before concluding no audit is required
- Report the two segments separately in the return, so the carry-forward survives
Steps two and six are where returns are lost. Netting the segments together is quick, looks tidy, and quietly forfeits the loss you were entitled to carry.
This is a working reference on the general framework, not advice on a particular return. Thresholds, the presumptive provisions and the ITR business codes are set by the Finance Act and the forms for each year and change from time to time; the treatment of options premium in turnover is itself contested. Confirm the position for your own year and facts before filing.
Frequently asked questions
Is my turnover the same as the contract turnover my broker shows?
No, and this is the single most expensive misunderstanding in the area. The contract or notional turnover on a broker statement is the value of the contracts you traded — for a moderately active derivatives trader it runs into crores. Turnover for income-tax purposes is computed from your profits and losses, not from contract value, and is usually a small fraction of it. Using the broker's figure is how people conclude they need a tax audit when they do not.
Is intraday equity trading speculative income?
Yes. An intraday equity trade is settled otherwise than by actual delivery, which makes it a speculative transaction under Section 43(5) of the 1961 Act. It is still business income and still taxed at slab rates — speculative is a classification that governs how losses may be set off, not a separate rate. Derivatives traded on a recognised exchange are specifically carved out of that definition and are treated as ordinary business income.
How is F&O turnover calculated?
On the absolute-sum principle: profits and losses on each trade are added together as positive figures, so a ₹40,000 profit and a ₹25,000 loss contribute ₹65,000, not ₹15,000. The treatment of premium received on options sold has changed between editions of the ICAI guidance and is the one point on which practice genuinely differs — it is worth settling explicitly for your own file rather than assuming, because it can move the figure materially.
Does a tax audit apply if I only made losses?
It can. The audit requirement under Section 44AB of the 1961 Act — Section 63 of the Income-tax Act 2025 — turns on turnover and on whether the presumptive scheme is being departed from, not on whether you made money. A loss-making year with high absolute turnover can require an audit, which is exactly why the turnover figure has to be computed properly rather than assumed.
Can I set an intraday loss against my salary?
No. A speculation loss can only be set off against speculation income, and can be carried forward for four years for that purpose alone. An F&O loss is different: it is a non-speculative business loss, can be set off against most other heads in the same year other than salary, and carries forward for eight years. The asymmetry between the two is the main practical reason the classification matters.
Which business code do I use for trading in the ITR?
The codes are published with the ITR forms and are revised from time to time, so the current year's schedule is the only reliable source — a code copied from last year's return is a common cause of a defective-return notice. Speculative and non-speculative activity are reported separately in any case, so a single code rarely describes the whole of a trader's activity.
Not sure whether your trading needs a tax audit?
Send the profit and loss statement your broker issues for the year, along with any other business income. Whether the audit threshold is crossed, which head each part falls under, and what the losses can be set against are established before the return is prepared.
Related service: F&O & Intraday Trading Tax