In recent updates, the method to compute income from futures and options (F&O) trading (treated as speculative business income) has shifted from the traditional mark-to-market approach to a turnover-based method. Here’s how it works:

Step 1: Determine Your Turnover

• Turnover Calculation:
  For F&O trading, the turnover is now defined as the aggregate sale consideration of all contracts you traded during the financial year.
  • This means you add up the sale prices of all the futures and options contracts sold (closed positions) during the year.
  • Even if the positions are not delivered (i.e., contracts are closed out), the sale consideration is included in your turnover.

Step 2: Deduct the Purchase Cost

• Purchase Cost:
  From the total turnover, subtract the total cost of acquiring these contracts (the purchase price paid when entering the contracts).

Step 3: Deduct Direct Expenses

• Direct Trading Expenses:
  Deduct all direct expenses incurred in trading, such as:
  • Brokerage fees
  • Transaction charges
  • Clearing and settlement fees
  • Any other costs directly attributable to the trading activity

Step 4: Arrive at Your Net Profit or Loss

• Net Speculative Business Income:
  The result after these deductions is your net profit (or loss) from F&O trading. This figure is treated as speculative business income and is taxed at your applicable business income slab rates.

Summary Table

Key Points to Remember

• Revised Method:
  • The revised approach focuses on the actual sale consideration (turnover) rather than solely relying on the mark-to-market adjustments.
• Business Expense Approach:
  • This method is similar to computing turnover in a typical business: you start with gross sales (in this case, sale consideration) and then deduct the cost of goods sold (purchase cost) and other direct expenses to arrive at net profit.
• Taxation:
  • The resulting net profit or loss is considered speculative business income and is subject to tax according to the applicable slab rates for business income.

Read: How to calculate capital gain on intra-day trading of shares?