From time to time ICAI has issued the updated version of Guidance Note on Tax Audit u/s 44AB (eight edition) after incorporating the changes/ amendments in provisions relating to tax audit and reporting requirements for the relevant assessment year, for information and support of the Members.

How to calculate the turnover in a transaction of options?

As per the Seventh Edition of GN issued in 2014

As per the Eighth Edition of GN issued in 2022

(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. (iii) In respect of any reverse trades entered, the difference thereon, should also form part of the turnover.

(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.

Note: Earlier in the calculation of turnover, the premium received was in principal considered twice i.e both in point (i) and point (ii) above. The portion of the premium during the sale was already included in the total of favourable and unfavourable differences.

Practical Example to understand the change in the calculation of turnover

Mr. Suresh did the following option trading transactions

• Bought 1 lot of call option 500 shares of EFG for Rs. 80 & sold at Rs. 100 (Call Option) and
• Bought 1 lot of put Option, lot size 500 share of KLM for Rs 50 and sold at Rs. 45.
• Sold 1 lot of Call option, lot size 500 shares of XYZ for Rs. 60 and contract not squared off on expiry and delivery is given.

The first two transactions are examples of squared-off transactions and the third transaction is the example of the contract not expired and settled through delivery.

Script Name	Transaction Type	Lot Size	Purchase Value	Sales Value (Premium received on Sale)	Gain / (Loss)	Turnover as per GN 2022	Turnover as per GN 2014
(1)	(2)	(3)	(4)	(5)	(6)	(7) =(5)-(4)	(8) = (5)+(6)
EFG	Call Option	500	40,000	50,000	10,000	10,000(Note-1)	60,000(Note-2)
KLM	Put Option	500	25000	22,500	(2,500)Loss	2,500	25,000
XYZ	Call Option (Not squared off)	500	–	30,000	–	30,000(Note-3)	30,000
Total						42,500	1,15,000

As we can see in the above example Turnover as per New Guidance Note 2022 would be Rs. 42,500/- and as per old Guidance Note 2014 would be Rs. 1,15,000/-.

Note -1: Turnover = As premium received is included for determining profit/loss so it’s not included in turnover i.e. Absolute Profit/Loss = 10,000/-

Note -2: Turnover = Premium received on sale 50,000 + Absolute Profit/Loss Rs. 10,000 = 60,000

Note -3: Turnover = Premium received on the deemed sale of that contract on the expiry date, premium received is not included in determining profit/loss. {SEBI mandates physical settlement if a trader holds a position in any of the stock F&O contracts on the expiry date if the contract is not squared off.}

Let us see the various categories of taxpayers below:

Category of person	Threshold
Business
Carrying on business (not opting for presumptive taxation scheme*)	Total sales, turnover or gross receipts exceed Rs.1 crore in the FY If cash transactions are up to 5% of total gross receipts and payments, the threshold limit of turnover for tax audit is increased to Rs.10 crores (w.e.f. FY 2020-21)
Carrying on business eligible for presumptive taxation under Section 44AE, 44BB or 44BBB	Claims profits or gains lower than the prescribed limit under presumptive taxation scheme
Carrying on business eligible for presumptive taxation under Section 44AD	Declares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic threshold limit.
Carrying on the business and is not eligible to claim presumptive taxation under Section 44AD due to opting out for presumptive taxation in any one financial year of the lock-in period i.e. 5 consecutive years from when the presumptive tax scheme was opted	If income exceeds the maximum amount not chargeable to tax in the subsequent 5 consecutive tax years from the financial year when the presumptive taxation was not opted for
Carrying on business which is declaring profits as per presumptive taxation scheme under Section 44AD	If income exceeds the maximum amount not chargeable to tax in the subsequent 5 consecutive tax years from the financial year when the presumptive taxation was not opted for
Carrying on business which is declaring profits as per presumptive taxation scheme under Section 44AD	If the total sales, turnover or gross receipts does not exceed Rs 2 crore in the financial year, then tax audit will not apply to such businesses.
Profession
Carrying on profession	Total gross receipts exceed Rs 50 lakh in the FY
Carrying on the profession eligible for presumptive taxation under Section 44ADA	1. Claims profits or gains lower than the prescribed limit under the presumptive taxation scheme  2. Income exceeds the maximum amount not chargeable to income tax
Business loss
In case of loss from carrying on of business and not opting for presumptive taxation scheme	Total sales, turnover or gross receipts exceed Rs 1 crore
If taxpayer’s total income exceeds basic threshold limit but he has incurred a loss from carrying on a business (not opting for presumptive taxation scheme)	In case of loss from business when sales, turnover or gross receipts exceed 1 crore, the taxpayer is subject to tax audit under 44AB
Carrying on business (opting presumptive taxation scheme under section 44AD) and having a business loss but with income below basic threshold limit	Tax audit not applicable
Carrying on business (presumptive taxation scheme under section 44AD applicable) and having a business loss but with income exceeding basic threshold limit	Declares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic threshold limit