The Institute of Chartered Accountants of India’s (ICAI’s) latest Guidance Note on Tax Audit has brought some “clarity” on counting of premium received in options writing (selling) for determination of ‘turnover’, which is a key metric deciding the trigger of tax audit applicability for businesses.

It has now clearly said that premium received on sale of options is also to be included in turnover. However, where the premium received is included for determining net profit for transactions, the same should not be separately included, the latest Guidance Note said.

Industry happy with the move

The broking industry and chartered accountants are thrilled over the latest position, as it provides more clarity than the position highlighted in the previous ICAI Tax Guidance Note issued in 2014. In the 2014 Guidance Note, it was merely stated that premium received on sale of options is also to be included in turnover.

“Finally, in some good news for options writers, the ICAI has clarified that when calculating turnover to determine tax audit, only the profit or loss has to be considered. No need to separately add the premium when writing options as turnover,”  Nithin Kamath, Co Founder and CEO, Zerodha, the country’s largest online brokerage, tweeted.

Meanwhile, reacting to this development, Amarjit Chopra, Past President of the ICAI, said, “This is a clarification: Premium received in options writing will form part of the turnover unless it has been taken into consideration for determining the profit and loss”.

This is a clarification that will resolve the confusion among chartered accountants and the industry, Chopra added. 

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