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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Accounting and Taxation

Which statement about the tax audit of an assessee trading in equity derivatives is correct under the Income-tax Act as taught in NISM-VIII?

For tax audit purposes, turnover from futures and options is the sum of absolute favourable and unfavourable differences plus the premium received on options sold. It is not the notional contract value and not the net profit, and losses are non-speculative business losses.

  1. ADerivative trading losses are speculative and cannot be set off at all
  2. BTurnover is computed as the absolute sum of favourable and unfavourable differences plus premium received on sold optionsCorrect
  3. CTurnover is the notional contract value of all contracts traded
  4. DTurnover is the net profit for the year

Explanation

For futures and options, turnover for audit purposes is the total of favourable and unfavourable differences taken as absolute values, plus premium received on sale of options. Notional contract value is not used.

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