F&O Turnover Calculation and Tax Audit: Ultimate AY 2026-27 Guide

By FnOTax India Editorial Board · Updated 2026-05-30 · F&O Turnover Source verified

ICAI Guidance Note on Tax Audit (Revised 2025) — turnover formula update. The ICAI Direct Taxes Committee’s Tenth Edition (Revised 2025) of the Guidance Note on Tax Audit under Section 44AB updates the F&O turnover method. For tax audits of FY 2025-26 (AY 2026-27) onwards, the turnover formula is:

  1. Sum of favourable and unfavourable differences on squared-off trades; plus
  2. Premium received on sale of options — with anti-double-count proviso: if your broker P&L already nets the option-sale premium into the per-trade profit/loss, do not add the premium separately.
  3. Differences on reverse trades also count.
  4. Open positions at year-end are picked up when squared off.
  5. Delivery-settled derivatives use the trade-vs-settlement price difference; if you held the underlying as stock-in-trade, the entire sale value is business turnover.

For AY 2026-27 onward, use the Revised 2025 edition. Earlier assessment years should be checked against the ICAI guidance applicable to that year.

Source: ICAI, Guidance Note on Tax Audit under Section 44AB of the Income-tax Act, 1961 (Revised 2025), Direct Taxes Committee, Tenth Edition, para 5.11(b).

Source basis: This guide is source verified against the official documents listed below. It is educational guidance, not personalized tax advice.

Official sources used: Income-tax Act, 1961 (India Code consolidated PDF); Income-tax Act, 2025 — CBDT (official landing); CBDT: 1961 ↔ 2025 provisions concordance utility; CBDT Notifications (official index); CBDT FAQs on Interplay & Transitions — Income-tax Act 2025; ICAI Guidance Note on Tax Audit under Section 44AB (Revised 2025), Direct Taxes Committee, Tenth Edition, para 5.11(b).

Short answer

For AY 2026-27, compute F&O turnover under ICAI GN 2025: favourable and unfavourable differences plus option-sale premium, subject to anti-double-counting. Then test audit under s.63 (2025 Act); the Rs. 1 crore / Rs. 10 crore / Rs. 50 lakh thresholds are preserved across the transition.

F&O turnover is not the contract value and it is not profit after broker charges. For tax-audit turnover, the pinned ICAI method is built around favourable and unfavourable trade differences.

The source-verified formula

The ICAI Guidance Note on Tax Audit under Section 44AB says derivatives, futures, and options are squared up by receipts or payments of differences. For these transactions, turnover is determined by taking the total of favourable and unfavourable differences.

Practical formula:

  1. Add all favourable differences.
  2. Add all unfavourable differences as positive numbers.
  3. Do not use the full contract value.
  4. Keep brokerage, STT, GST, exchange charges, stamp duty, and other broker debits separate from the turnover figure.

Option premium without double-counting

ICAI says premium received on sale of options is to be included in turnover. It also says that where the premium received is included for determining net profit, such net profit should not be separately included.

The safest practical reading for retail F&O reports is: do not count the same option premium twice. If your broker tax P&L already computes the option transaction result with premium included, reconcile that result to the ICAI favourable/unfavourable difference method instead of adding another premium line mechanically.

Worked example

Assume these three F&O results before charges:

  1. Nifty option profit: Rs. 12,000.
  2. Bank Nifty option loss: Rs. 7,500.
  3. Stock future profit: Rs. 2,000.

The source-verified turnover is Rs. 21,500. That is Rs. 12,000 plus Rs. 7,500 plus Rs. 2,000. If brokerage and taxes are Rs. 1,200, they affect the profit-and-loss computation, but they do not reduce this turnover number.

Turnover survives the Act change

The ICAI turnover method is procedural guidance, not a statutory definition. For AY 2026-27 onward, the working should follow ICAI GN 2025 while the statutory audit threshold moves from s.44AB to s.63.

The audit threshold that is safe to state

Under the 1961 Act (AY 2025-26 and earlier), s.44AB(a) starts with the general rule: a person carrying on business must get accounts audited when total sales, turnover, or gross receipts in business exceed Rs. 1 crore in the previous year. The applicable ICAI guidance quotes the s.44AB(a) cash-condition proviso: where aggregate cash receipts and aggregate cash payments each do not exceed 5% of the relevant totals, the clause works as if “one crore rupees” were substituted by “ten crore rupees”.

Under the 2025 Act (AY 2026-27 onwards), s.63(1) carries the same thresholds — ₹1 crore base, ₹10 crore where both cash tests are satisfied, ₹50 lakh for profession — into the new statute. Form 3CA/3CB/3CD is replaced by Form 26 under the Income-tax (No. 2) Rules, 2026, and the first audit cycle under the new Act covers TY 2026-27 with a 30 Sep 2027 specified date.

That is why the Rs. 10 crore number should never be written as a blanket exemption. It depends on the cash receipt and cash payment conditions, and the underlying statutory anchor changes from s.44AB to s.63 from 1 Apr 2026. Listed F&O trades normally settle through broker and banking systems, but the filing position should still be checked from the ledger and books, not assumed from a headline.

Pinned official sources for the points above: CBDT Circulars (official index); CBDT: Income Tax Returns (notified forms); Income Tax e-Filing Portal: ITR downloads; Income Tax e-Filing Portal: individual business/profession help.

What to preserve before filing

Keep the broker tax P&L, trade-wise report, contract notes, ledger, bank statement, and a reconciliation between the broker result and your turnover working. The source-verified point is narrow but important: turnover is a compliance metric; taxable income is computed separately.

Dual-citation framing (AY 2025-26 vs AY 2026-27)

This guide cites two statutes side-by-side because India is mid-transition.

  • AY 2025-26 (TY 2024-25) and earlier: the Income-tax Act, 1961 applies. Returns filed in 2025 follow 1961-Act section numbers (43(5), 44AA, 44AB, 44AD, 71, 72, 73, 74, 80, 139, 143, 271B).
  • AY 2026-27 (TY 2026-27) onwards: the Income-tax Act, 2025 (Act No. 30 of 2025, assented 21 Aug 2025, commenced 1 Apr 2026 per s.1(3)) applies, with the 1961 Act repealed by s.536. Successor section numbers are 2(31), 2(33), 58, 62, 63, 110, 111, 112, 113, 117, 263, 270, 408, 428. Forms move from 3CA/3CB/3CD to Form 26 under the Income-tax (No. 2) Rules, 2026 (CBDT Notification 22/2026, in force 1 Apr 2026).

When a calendar date is not pinned to a CBDT circular below, treat the date as indicative and reconcile with the e-Filing utility before relying on it.

FAQ

1. Which ICAI formula applies for AY 2026-27? Use ICAI GN 2025 for AY 2026-27 onward. It keeps the favourable/unfavourable difference base and includes option-sale premium, subject to anti-double-counting.

2. Did audit thresholds change on 1 Apr 2026? No. The ₹1 cr / ₹10 cr / ₹50 L thresholds are preserved in 2025 Act s.63 — only the section number changes.

3. Does Form 3CD still apply? For AY 2025-26 (1961 Act): yes. For AY 2026-27 (2025 Act) onwards: Form 3CA/3CB/3CD is replaced by Form 26 (Parts A/B/C/D) under the Income-tax (No. 2) Rules, 2026.

Official sources

Source basis: This article is checked against the official documents listed below. It is educational guidance, not personalised tax advice.