hello,
my apologies that i didnt clear the options part of calculations.
to be very frank there are a number of speculations as to how to determine turnover of options. i have came across a number of different ways of calculating depending on what the client feels comfortable with.
i particularly am comfortable with the following way of calculation
now as per the ICAI guidance note:
1. the premium received on sale of an option is included in your turnover
hence if you sale 1lot option of X stock (1lot of 500 shares) at a premium of rs 10 than your premium received will be Rs.5000. now if the trade is fully favorable to you then the option will expire and you will gain entire 5000. hence this is your turnover. if the option is not favorable and you square of the position gaining say Rs.3000 then again the Entire Rs.5000 is your turnover but the buy premium, which you had paid, of Rs. 2000 will be accounted for as your Expense.
2. premium paid on buy a call or put is straight away an expense which is not to be included in turnover when it expires worth less. if you square off (which is ultimately selling) the position before expiry then again the sale premium is the turnover and buy premium is expense.
3. in case for the outstanding contracts on 31/03/20xx. one can totally ignore the same and take the turnover in the year of expiry.
yes i do agree that the valuation of option is very vague. there is no straight set rule to value option turnover or for the unexpired contracts.
the bitter truth is yes this what the department wants either you pay on calculations of 8% or go for audit to claim lower income.
Please Note: the above are my views of calculating the turnover based on number of practical situation and limitations to clear set of Rules. the same may be contradictory to others opinions. please use with discretion.
Regards.
CA. Ritesh Bafna
my apologies that i didnt clear the options part of calculations.
to be very frank there are a number of speculations as to how to determine turnover of options. i have came across a number of different ways of calculating depending on what the client feels comfortable with.
i particularly am comfortable with the following way of calculation
now as per the ICAI guidance note:
1. the premium received on sale of an option is included in your turnover
hence if you sale 1lot option of X stock (1lot of 500 shares) at a premium of rs 10 than your premium received will be Rs.5000. now if the trade is fully favorable to you then the option will expire and you will gain entire 5000. hence this is your turnover. if the option is not favorable and you square of the position gaining say Rs.3000 then again the Entire Rs.5000 is your turnover but the buy premium, which you had paid, of Rs. 2000 will be accounted for as your Expense.
2. premium paid on buy a call or put is straight away an expense which is not to be included in turnover when it expires worth less. if you square off (which is ultimately selling) the position before expiry then again the sale premium is the turnover and buy premium is expense.
3. in case for the outstanding contracts on 31/03/20xx. one can totally ignore the same and take the turnover in the year of expiry.
yes i do agree that the valuation of option is very vague. there is no straight set rule to value option turnover or for the unexpired contracts.
the bitter truth is yes this what the department wants either you pay on calculations of 8% or go for audit to claim lower income.
Please Note: the above are my views of calculating the turnover based on number of practical situation and limitations to clear set of Rules. the same may be contradictory to others opinions. please use with discretion.
Regards.
CA. Ritesh Bafna
As you already said that there might different ways to calculate options turnover so is it also correct to say that options turnover= premium recd. + Premium Paid.
