Tax Audit Applicability on F&O | CA Rachana Ranade

"if you are running a business and if your turnover exceeds one crore rupees then you have to get your books of accounts audited by a chartered accountant but there is also one exception to that Now what does this say it says that if your cash receipts are up to five percent of your total receipts and if your cash payments are up to five percent of your total payments then the limit of tax audit is increased from one crore to ten crores so if you are doing F&O business okay strictly only F&O business then ideally the limit for you will be 10 crores"

"the turnover in such type of transactions is to be determined as follows very clearly it's given how do we determine the turnover right what is given first point says the total of favorable and unfavorable differences shall be taken as turnover"

"and second point it is mentioned that premium received on sale of options is also to be included in turnover"

"total of favorable and unfavorable and what is what else is to be done for options is that premium received on sale of options is also to be included in turnover so this point plus this point together is going to be treated as the turnover so for better understanding let's take an example and to begin with we will take an example of a call seller. So assume you are a call seller and you have sold call option of 15 000 strike price of course I am sure if you have done uh transactions and features and options everyone knows that if you're a call seller you must have received a premium for that and premium is 300 rupees right so now let's understand based on a case study what happens on expiry date. Assume that on expiry date it closes at 16 thousand market closes at sixteen thousand so this went against your trade and this went in the favor of call buyer so is the call buyer going to execute that? Answer is Yes and you will have to face a gross loss of thousand rupees right but then what would be the net loss see gross loss was thousand you received a premium of 300 so your net loss will be only 700 rupees but then again comes the absolute figure so absolute figure is basically the mod value what do we mean by mod value we have to remove the plus or minus sign whatever so absolute loss in this case will be only 700 rupees right but that's an absolute figure what will be the turnover now again for that let's go back to the guidance note total of favorable and unfavorable and what is what else is to be included premium received will also be included so this 700 plus premium received in total the total turnover will be 1000 rupees"

"case two you had sold another fifteen thousand strike price and you collected three hundred rupees premium assume that market went in your favor but of course against the favor of call buyer so is the call buyer going to execute the contract? Answer is No. So no gross profit what about the net profit net profit is nothing but uh 300 rupees whatever premium you have received absolute profit or loss again will be 300 but what will be the turnover absolute profit or loss plus premium received so the turnover will be rupees 600"

"assume strike price was 16,000 and assume that the premium received was 350. Now what happens on expiry date on expiry date the market goes to sixteen thousand seven hundred so has it gone in the favor of the put seller? Answer is Yes but of course against the uh direction of the put buyer and that is why gross profit or loss is going to be zero in this case net profit or loss is again going to be 350 same premium received what is going to be the absolute profit or loss same 350 and what will be the turnover absolute profit or loss plus the premium received so 350 plus 350 that's going to come up to 700."

"same you had taken a strike price of 16,000 premium received 350 now market goes to 14,000 okay Now is this in the favor of a put buyer yes is that person want to execute the contract yes how much loss will you have to face the loss will be 2,000 rupees right Now what is going to be the net loss you faced a loss of 2000 but you have also collected premium of 350 so the net loss will be 1650 absolute so basically remove the minus sign is going to be 1650 again you are going to add 2,000 rupees what is 2000 rupees the premium received right and that sorry uh you're going to add up uh the amount of premium receipt which is going to be 350 rupees so your total is going to be 350 plus 1650 and that comes to 2,000 rupees"

"assume that you had bought a call option with a strike price of fifteen thousand how much is the premium paid assume 300 right so now let's understand what happens on expiry assume on expiry the market goes to 16,000. Has it gone in your favor? Yesss, are you going to execute the contract? Yess what will be the gross profit in this case it will be thousand rupees for those who have done futures and options or futures and options practically what will happen in this case is basically when the call buyer is going to square off the position, first he has bought ultimately he's going to sell while he bought the call he had paid the premium and when he is going to square off that is whenever he is going to sell the call option that is when he is going to receive the premium so basically this thousand rupees you can either call it as gross profit or you can also call it as a premium on sale of option okay so this is again something which is very crucial if you want you can just rewind and replay this part of the video how much was the premium paid as I mentioned it was 300 so now how much is the net profit or loss it is only rupees 700 absolute profit or loss again 700 now I want a correct answer how will the turnover be calculated the absolute profit or loss plus plus what premium received so it's going to be 700 plus thousand and in this case it's going to be 1700 rupees"

"going ahead with the next one call option you bought at fifteen thousand assume you paid a premium of three hundred what happened on expiry market went against your direction it went down to fourteen thousand five hundred are you going to execute the contract answers obviously no so here you will see a dash now how much will be the net profit or loss nothing whatever premium you have paid that is 300 rupees so what will be the absolute profit or loss that will be nothing but 300. Now tell me this absolute profit or loss plus premium on sale of option will that ever happen array no you're not going to execute the contract and that is the reason why you didn't receive any premium on sale or on square of the option and that is the reason why turnover will again be only 300 rupees"

"Now comes the grand finale assume you had bought a put option at 16,000 and you had paid the premium of 350. the trade goes in your favor and the market goes down to 14,000. So what is the gross profit? it's going to be nothing but the difference between these two or rupees 2000 and this 2000 is nothing but whenever you want to square off this position you are going to receive this as a premium of rupees 2,000 right in this case what will be your net profit or loss it will be 2000 minus 350 which is the premium paid and that's why it's going to be 1650. What will be the absolute profit or loss same 1650 and here comes the trick part now what is turnover turbo is nothing but absolute profit or loss plus premium received on sale of option so it's going to come up as 1650 plus 2000 so this is going to come up to 3650."

"if you are going ahead with presumptive taxation then you will have to file ITR four but if you don't opt for presumptive taxation you will have to go ahead with ITR 3"