Turnover is the number that decides whether an F&O trader needs a tax audit. It is also the number traders most often get wrong, because the word means something very different for F&O than it does for a shop or for your broker's contract notes.
General information, not tax advice
This article explains the rules in general terms for education. It is not tax advice and may not fit your situation. Tax law and due dates change, and the Income-tax Act, 2025 is new, so some points are still being interpreted. Consult a chartered accountant before you file or make a decision.
Where the method comes from
The Income-tax Act does not define turnover for derivatives. In practice everyone, from brokers to the tax department, follows the Guidance Note on Tax Audit issued by the Institute of Chartered Accountants of India (ICAI). For trades that are squared off, it says that the total of favourable and unfavourable differences is taken as turnover.
In plain terms: work out the profit or loss on every closed trade, drop the minus sign from the losses, and add everything up. A profit of ₹10,000 and a loss of ₹10,000 give a net result of zero but a turnover of ₹20,000.
What about option premium?
Older editions of the Guidance Note told option sellers to add the premium received to turnover as well. The 2022 revision changed this, and the 2023 text reads: premium received on the sale of options is to be included in turnover, but where it is already included in determining the net profit of the transactions, it should not be included separately.
For a trade that has been closed, the premium received is always part of the profit or loss, so in normal cases you do not add it again. Option buyers and option sellers now use the same method. Brokers such as Zerodha updated their tax P&L reports accordingly.
Other rules in the Guidance Note
- Reverse trades: the difference on any reverse trade also forms part of turnover.
- Open positions: a position still open on 31 March counts in the year it is squared off.
- Delivery settlement: where a derivative is settled by delivery, the difference between the trade price and the settlement price is taken as turnover.
- Each segment counts: equity, currency and commodity derivatives are all added, along with any other business turnover you have.
Worked example (illustrative numbers)
Here are six closed trades in one year. The amounts are chosen to keep the arithmetic easy; they are not real prices.
| Trade | Profit or loss | Counts towards turnover |
|---|---|---|
| Bought a Nifty call, sold it higher | ₹6,500 | ₹6,500 |
| Bought a Nifty put, sold it lower | -₹4,200 | ₹4,200 |
| Sold a call for ₹9,000 premium, bought it back cheaper | ₹3,800 | ₹3,800 |
| Sold a put for ₹5,000 premium, bought it back dearer | -₹11,000 | ₹11,000 |
| Bought a Nifty future, sold it higher | ₹14,000 | ₹14,000 |
| Sold a Nifty future, bought it back higher | -₹7,500 | ₹7,500 |
| Total | ₹1,600 | ₹47,000 |
Turnover is ₹47,000: ₹25,500 from options and ₹21,500 from futures. Net profit is ₹1,600, which is 3.4% of turnover. Under the pre-2022 method the ₹14,000 of premium received on the two sold options would have been added, giving ₹61,000.
Notice that profit is well under 6% of turnover. That ratio matters for the audit question, and it is common: an active trader who roughly breaks even will almost always have a profit far below 6% of turnover.
Turnover is not contract value
Your broker's dashboard may show the notional value of contracts traded, which can run into crores even for a small account. That figure is used for exchange charges, not for income tax. Tax turnover is the much smaller sum of absolute profits and losses. Confusing the two leads people to believe they need an audit when they do not.
Getting the number in practice
Most large brokers publish a tax P&L report that shows trade-wise turnover calculated by this method. If you trade with more than one broker, add the turnover from each. Use trade-wise figures rather than a single net number for the year, and keep the reports with your tax records.
Examples use illustrative values, not current market data. This is general education, not investment advice.