F&O turnover isn't the value of contracts traded — it's a specifically defined figure under ICAI's Guidance Note on Tax Audit under Section 44AB, and that definition changed between editions in a way that matters for anyone still working from an older reference.
The Current (10th Edition) Formula
For AY 2026-27 onward, per the 10th edition (Revised 2025) of the ICAI Guidance Note:
F&O turnover = sum of absolute favourable and unfavourable differences on squared-off trades (futures and options alike) + premium received on sale of options
Two components, added together, not netted against each other:
- The absolute P&L sum — every squared-off trade's profit or loss, taken as an absolute value and summed, so gains and losses both add to turnover rather than offsetting
- Option-sale premium received — added on top, for options specifically
Why the 8th vs 10th Edition Distinction Matters
The 8th edition of the Guidance Note (applicable from AY 2022-23) had removed the option-premium add-on that older editions carried — for several assessment years, turnover was computed on the absolute P&L sum alone, with premium not separately added.
The 10th edition (Revised 2025), applicable from AY 2026-27, reinstated the premium component — an edition-over-edition reversal, not a continuation of the 8th edition's simplified formula. Anyone computing F&O turnover today using the 8th-edition method — absolute P&L sum only, no premium add-on — is applying a superseded formula and will understate turnover for AY 2026-27 and later years.
Why Understating Turnover Is a Real Compliance Risk, Not Just an Arithmetic Slip
F&O turnover directly determines whether a Section 44AB tax audit is required in the first place, and which presumptive scheme thresholds apply. A trader whose turnover is understated by omitting the premium component can be wrongly concluded to fall below the tax audit threshold, when the correctly-computed (premium-inclusive) figure would actually require one. This isn't a rounding difference — for an active options trader, premium received on written options can be a substantial fraction of total turnover, large enough on its own to flip an audit-required conclusion.
The Anti-Double-Count Proviso
The formula carries an explicit safeguard: where a broker's own P&L statement has already netted the premium into the per-trade result (rather than reporting it separately), adding the premium again would double-count it. The correct approach checks whether the broker's reported P&L figure already reflects premium, and adds the premium separately only where it hasn't already been absorbed into that per-trade number.
Frequently Asked Questions
Should option premium be added to F&O turnover or not?
For AY 2026-27 onward (10th edition, Revised 2025), yes — option-sale premium received is added to the absolute P&L sum. This reverses the 8th edition's approach (AY 2022-23 onward), which had removed the premium add-on.
What happens if I use the 8th edition formula for a current-year tax audit assessment?
Turnover will be understated, because the option-premium component that the 10th edition reinstated won't be captured. This can incorrectly conclude that a tax audit isn't required when the properly-computed figure would trigger one.
Does the premium get added even if the broker's P&L already includes it?
No — that's exactly what the anti-double-count proviso addresses. Where the broker's reported P&L per trade has already netted the premium into the result, adding it again as a separate line item would double-count it. Check the broker's methodology before adding premium separately.
Is the turnover formula the same for futures and options?
The absolute-P&L-sum component applies to both futures and options alike. The premium add-on applies specifically to options — sale of options generates premium income that futures trading doesn't have an equivalent of.
CORAA's F&O Turnover Calculator applies the current 10th-edition formula — the absolute P&L sum plus option premium, with the anti-double-count check against a broker P&L that may have already netted it in — rather than the superseded 8th-edition method that's still circulating in older reference material.
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