|TMI Short Notes|
Computation of Turnover for the purpose of tax audit u/s 44AB - Speculation Business or Derivatives, futures, and options or Delivery based transactions
Determination of Turnover of the Business activities from Speculation transaction or Derivatives, futures, and options or Delivery based transactions always remains in the helm of affairs and debatable.
In this article, an attempt is being made by the TMI to analyze the provisions as per the Income Tax Act, 1961 alongwith the Guidance Note issued by the ICAI
It means a transaction in which a contract for the purchase or sale of any commodity including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. Thus, in a speculative transaction, the contract for sale or purchase which is entered into is not completed by giving or receiving delivery so, as to result in the sale as per value of contract note. In the case of an assessee undertaking speculative transactions there can be both positive and negative differences arising by settlement of various such contracts during the year.
In such transactions though the contract notes are issued for full value of the purchased or sold asset, the entries in the books of account are made only for the differences.
Derivatives, futures, and options:
Such transactions are completed without actual delivery of shares or securities or commodities etc. These are squared up by receipts/payments of differences. The contract notes are issued for the full value of the underlined shares or securities or commodities etc. 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:
Delivery based transactions:
Where the transaction for the purchase or sale of any commodity including stocks and shares is delivery based whether intended or by default, the total value of the sales is to be considered as turnover.
How to calculate Turnover/Gross Receipts of Shares, Securities & Derivatives;-
Example 1 - For Speculative Business
Aggregate of Positive & Negative shall form part of turnover i.e., Turnover = ₹58,335
Example 2 - For Derivatives & Futures
Turnover = Absolute profit i.e., Turnover = ₹ 92,473
For Intraday the same example 2 will be applicable.
In case of Option, if premium is there then such premium is to add in Absolute Turnover
An Opinion - Above mentioned example, as per our understand, is being followed by the professionals in the field. Though there’s different practices are there. Due to complications/confusion in point no. 2 - “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” regarding treatment of premium received. - Since the end result as per option (i) and (ii) will remain same.