F&O Turnover for FY 2025-26: How to Calculate It and When Tax Audit Applies

If you trade Futures & Options, two numbers from your broker can suddenly become the most important figures in your tax filing: your turnover and your net P&L. Turnover determines whether you owe a tax audit under Section 44AB; net P&L determines what you actually pay.

This article walks through the correct way to calculate F&O turnover for FY 2025-26 — under the ICAI Guidance Note revised in 2022, which differs dramatically from the pre-2022 rule still cached in many broker dashboards — and shows the Section 44AB audit decision tree, including the Sec 44AD opt-out trap that catches a surprising number of traders.

Reading time: ~12 minutes. If you only want the audit answer, jump straight to the decision tree.

What "F&O turnover" actually means (and why it matters)

For FY 2025-26 filing, turnover is the gate to two things:

1. Section 44AB tax audit threshold — the figure you cross to require a CA-signed audit report
2. Section 44AD presumptive eligibility — whether you can declare a flat 6% deemed profit instead of detailed books

F&O on a recognised stock exchange is non-speculative business income under Sec 43(5) proviso (d) — it flows to "Profits & Gains from Business or Profession" on ITR-3, taxed at your slab rate, not the 20% STCG or 12.5% LTCG concessional rates. (Intraday equity is speculative business income — different rule, different section, different sub-head within Schedule BP of ITR-3.)

One critical note before we go further: the "turnover" figure that some broker dashboards display under headings like Premium turnover, Trading turnover, or simply Turnover is often calculated using the pre-2022 ICAI rule. That figure is not what you use for Sec 44AB. We will show why.

How to calculate it (the ICAI 2022 method)

The ICAI Guidance Note on Tax Audit u/s 44AB was revised in 2022 to simplify how F&O turnover is computed. The current rule:

For Futures:

Turnover is the absolute value of profit or loss on each closed position, summed across the year.

If you bought a NIFTY future and sold it for a ₹50,000 profit, that contract contributes ₹50,000 to turnover. If you bought another NIFTY future and sold it for a ₹30,000 loss, that contract contributes ₹30,000 (absolute value — sign discarded). Total: ₹80,000.

For Options:

Turnover is the absolute value of profit or loss on each closed position, summed across the year.

Same as futures. The key difference from the pre-2022 rule: the premium received on sale of options is NOT added. Before 2022, traders had to add the gross premium received on each option sale; that requirement is gone.

For expired options:

• Long option that expires OTM: loss equals the premium you paid. Absolute value contributes to turnover.
• Short option that expires worthless: profit equals the premium you retained. Absolute value contributes to turnover.

For reverse-trade square-offs (closing a position by taking the opposite side):

The net difference between your opening and closing prices is what contributes — not the gross premium amounts.

The pre-2022 method is still cached in some broker dashboards and older blog posts. If your broker shows a turnover number that includes premium received on option sales, that is the old method. Do not use it for FY 2025-26 returns.

Worked example: Anil's FY 2025-26

Anil is a mid-sized retail trader. Across FY 2025-26 he closed six F&O positions covering the main scenarios.

Trade ledger

¹ Pre-2022 ICAI rule only — no longer added under the revised 2022 Guidance Note.

Turnover under the ICAI 2022 method (correct)

Sum of absolute P&L on each closed leg:

Turnover under the pre-2022 method (do NOT use)

Absolute P&L plus premium received on sale of options:

= 18,00,000 + 12,00,000 + 5,00,000 + 1,00,000

= ₹36,00,000

Same trading activity, the old method roughly doubles the figure. For traders with heavy short-option writing, the inflation can be 10–100×. A trader who applied the old method to a high-activity year would falsely cross Sec 44AB(a) thresholds and incur an unnecessary audit.

Anil's audit position

Anil's correct turnover of ₹18 L is well below both:

• The ₹3 cr Sec 44AD eligibility ceiling
• The ₹10 cr Sec 44AB(a) digital threshold (covered in the next section)

His net P&L of ₹8 L is about 44% of turnover — well above the 6% deemed profit Sec 44AD would assume.

Anil's filing choices:

• Under Sec 44AD presumptive: declare ₹8 L (he must declare at least actual or 6%, whichever is higher). Simple, no books, no audit. But entering 44AD creates a 5-year exit penalty: if he opts out within the next 5 years and his total income exceeds the basic exemption, Sec 44AB(e) triggers an audit regardless of his turnover.
• Under normal computation: declare actual ₹8 L with books. No audit (44AB(a) threshold not crossed). If he has no prior 44AD use, he is safe.

Either way, ITR-3 is mandatory — F&O is business income, ITR-2 is not an option.

Sec 44AB thresholds: which one applies

Section 44AB(a) has two thresholds:

• ₹1 crore — the default
• ₹10 crore — if aggregate cash receipts AND aggregate cash payments each fall within 5% of the totals

The second threshold was inserted by the Finance Act 2020 and raised to ₹10 cr by the Finance Act 2021. The intent: give fully-digital businesses a higher audit threshold.

For F&O traders, settlement is entirely via the broker — money in and out flows through bank accounts and broker ledgers, not cash. The cash-receipts and cash-payments tests are almost always satisfied (both are effectively zero). In practice, the operative Sec 44AB(a) threshold for F&O traders is ₹10 cr.

Section 44AB also has clause (e), which has nothing to do with turnover. Sec 44AB(e) triggers an audit when a taxpayer who used Sec 44AD presumptive in any of the last 5 years now opts out (declares actual profits) and has total income above the basic exemption. We explain this trigger in the next section.

Sec 44AD presumptive + the opt-out trap

Section 44AD is the presumptive taxation scheme for small businesses. The Finance Act 2023 raised its eligibility ceiling to ₹3 crore for businesses whose digital receipts are at least 95% of total receipts (otherwise the older ₹2 crore ceiling applies). F&O traders, being fully digital, qualify for the ₹3 cr ceiling.

Under 44AD, you declare a deemed profit of:

• 6% of turnover for digital receipts
• 8% of turnover for cash receipts

If your actual profit is higher than the deemed figure, you must declare the actual figure. If it is lower, you may declare the deemed figure and pay tax on it — saving the headache of books, but possibly overpaying tax.

The Sec 44AD(4) lock-in

Section 44AD(4) is the trap. If you have declared profits under 44AD in any of the previous 5 assessment years, and in the current year you do not declare under 44AD (i.e., you opt out and declare actual profits), then:

• You cannot return to 44AD for the next 5 assessment years
• During this lock-in, if your total income exceeds the basic exemption (₹4 L under new regime / ₹2.5 L under old, FY 2025-26), Sec 44AB(e) triggers an audit — regardless of your turnover

This catches a lot of F&O traders. A common pattern: a trader uses 44AD in an early light year (₹15 L turnover, ₹2 L profit declared as 6% deemed), then has a bigger year with losses or thin margins. Opting out makes them subject to 44AB(e) audit even if their turnover is only ₹40 L. They expected the threshold to be ₹10 cr; in fact, for them, the threshold became zero.

A note on Sec 44AD(4) interpretation: The prevalent reading among CAs is that the lock-in applies whenever a taxpayer who has declared under 44AD in any prior year subsequently declares non-44AD income for the same business. Some commentators argue it applies only when the taxpayer was eligible AND chose to opt out (not when the business simply grew past the 44AD ceiling). This article uses the conservative reading. If CBDT issues a clarification, treatment may evolve.

The audit decision: do I need one for FY 2025-26?

For turnover in the ₹2–3 cr band with prior 44AD use, the same opt-out logic as the ≤ ₹2 cr cluster applies — 44AD eligibility extends to ₹3 cr when digital receipts ≥ 95%, so opting out triggers Sec 44AB(e) if total income exceeds the basic exemption.

If your situation does not match any row, default to consulting a CA — the table covers the common cases but Sec 44AB has several other clauses (b), (c), (d) that apply to specific business types and presumptive schemes outside the F&O scope.

Related: ITR-3, losses, books, audit report

This article focuses on turnover and the audit decision. Several adjacent topics come up immediately after and will each get their own F&O-pillar article:

• ITR-3 walkthrough. Your F&O P&L lands in Schedule BP (Profits & Gains of Business or Profession), is taxed at slab rates (not the 20% STCG / 12.5% LTCG concessional capital-gains rates), and interacts with your salary, capital gains, and other heads in specific ways. A full Schedule BP walk-through is on the way. Coming soon on the F&O pillar.

• F&O loss carry-forward (Sec 72). Non-speculative business losses carry forward 8 years against any business income — but only if ITR-3 is filed by the original due date u/s 139(1). A belated return forfeits the 8-year carry-forward (current-year set-off against other heads still works). (Intraday equity losses follow Sec 73, a 4-year CF against speculative profit only — a different rule covered separately.) Coming soon.

• Books of accounts (Sec 44AA). Once your income or turnover crosses specific thresholds, the Act requires you to maintain books — cash book, ledger, bills, vouchers — before any audit decision can even be made. The specific thresholds and records required are covered in the audit article. Coming soon.

• The audit report (Form 3CD). If Sec 44AB triggers, your CA files Form 3CA/3CB + Form 3CD covering the disclosures the Act requires. Timeline, fees, and what to prepare are all in the dedicated piece. Coming soon.

Frequently asked questions

Q: Do I add option premiums to my turnover calculation? A: No, not since the ICAI Guidance Note was revised in 2022. Turnover for Sec 44AB is the absolute sum of profits and losses on each closed leg — for both futures and options. Some broker dashboards and older guides still show a "premium turnover" or "trading turnover" figure that includes premiums; these are based on the pre-2022 rule and should not be used for current returns.

Q: My F&O turnover is ₹1.5 crore — do I need a tax audit? A: Probably not. The Sec 44AB(a) threshold is ₹1 crore by default, but rises to ₹10 crore when aggregate cash receipts and payments are each within 5% of the total. F&O settlement is entirely via the broker (digital both directions), so the ₹10 crore threshold applies in practice. A separate trigger — Sec 44AB(e) — can apply if you used Sec 44AD presumptive in any of the last 5 years and are now opting out with total income above the basic exemption.

Q: Can I file F&O on ITR-2 since the rest of my income is salary and capital gains? A: No. F&O is treated as non-speculative business income under Sec 43(5) proviso (d). Any income (or loss) under "Profits & Gains from Business or Profession" mandates ITR-3 — even if F&O is your smallest income source.

Q: If my F&O year was a loss, can I skip filing it? A: No — and skipping forfeits your carry-forward. F&O losses carry forward 8 years against any business income under Sec 72, but only if (a) ITR-3 is filed and (b) it is filed by the original due date u/s 139(1) — 31 July, or 31 October if audit applies. A belated return preserves the loss for the current year only, not for CF.

Q: I used Sec 44AD presumptive in FY 2022-23 but switched to actual P&L in FY 2024-25. Can I go back to presumptive in FY 2025-26? A: No. Sec 44AD(4) locks you out of presumptive for the 5 assessment years subsequent to your opt-out year — so opting out in FY 2024-25 (AY 2025-26) means you cannot return to 44AD until FY 2030-31 (AY 2031-32). During this lock-in, if your total income exceeds the basic exemption (₹4 L new regime / ₹2.5 L old regime for FY 2025-26), you must get books audited under Sec 44AB(e), regardless of your turnover.

Further reading

• Consolidating tax P&L across multiple brokers — the hub article for traders with multiple demats
• Zerodha tax P&L guide — where your F&O numbers originate
• Section 64(1A) minor income clubbing — relevant if a minor account has F&O activity
• LTCG ₹1.25L exemption FY 2025-26 — coming soon

This article reflects rules as of FY 2025-26 (Budget 2024 amendments and Finance Act 2025). Tax laws change yearly — always confirm with your CA or the income-tax portal before filing.