F&O and Intraday Trading Taxation: ITR-3 Filing, Turnover & Section 44AB Audit

Classification of Trading Income

Income from stock market trading is categorized under the Income Tax Act into distinct heads:

• Intraday Equity Trading: Speculative Business Income (Section 43(5)).
• Futures & Options (F&O) Trading: Non-Speculative Normal Business Income.
• Delivery Investing: Capital Gains (STCG / LTCG).

How to Calculate F&O Turnover (ICAI Method)

As per the latest Guidance Note issued by ICAI, F&O turnover is calculated as:

Turnover = Sum of Absolute Profits + Sum of Absolute Losses + Premium received on sale of options

When is a Tax Audit Mandatory under Section 44AB?

1. Turnover exceeds ₹10 Crores (provided 95%+ transactions are digital).
2. You declared profits under Section 44AD in a previous year, but current year profit is lower than 6% and total income exceeds basic exemption limit.

Allowable Trading Business Deductions

Traders filing Form ITR-3 can deduct legitimate business expenses: brokerage, STT (against business income), internet bills, advisory subscriptions, trading laptop depreciation, and software fees.