Applicability of Tax Audit in India

Thanks for the response.

If I go for this presumptive taxation scheme, can you explain what I’d need to do based on the details I’ve provided?

As I’m making a loss, will I still need to pay tax at 6% of turnover?

Also with regards to tax audit, can you clarify if both the conditions of turnover and income above basic limit need to be fulfilled?

Hi @gurjot_ahluwalia

You just need to disclose turnover and profits at 6% of Turnover and pay tax on the same and file ITR 4.

Yes, even if you are making loss, and if you don’t want to maintain books of accounts and get them audited, you have to pay tax on 6% of Turnover.

In case your turnover exceeds 10 crore, then irrespective of any other condition, tax audit will be applicable. You can check the tax audit applicability from the below link:

Hope this helps.

My turnover from fno is 13 lakh and I have incurred losses of 65000 so do I need tax audit…

Hey @Nowitz_Cool, tax audit is applicable when

  • Turnover is above the threshold
  • Profit is less than 6% of the turnover & income is more than the basic exemption limit.

Moreover, you can use this tool to determine whether tax audit is required or not:

Hi,
I am a salaried person with 30% tax slab.
i have traded intraday equity and short term equity delivery
LTCG: None
STCG gain: 1.9 lakhs
Intraday losses: 1.18 Lakhs
other expenses (brokerage, STT, GST, stamp): 1 lakhs
turnover : 10 lakhs (intraday trading)
35 lakhs (Short term equity delivery)

as per ITD rules what are options for me.
do i need to do audit tax report by CA as per sec 44AD?
what option do I have to file ITR?
does quicko assist in tax audit?

Hey @anshu, since you have income from intraday trading which is considered as a speculative business income, you must file ITR-3 and prepare financial statements.

Tax Audit under Section 44AB is applicable if all the below conditions are met:

  1. Turnover is upto INR 2 Cr
  2. If there is a loss or profit is less than 6% of turnover
  3. Total Income is more than Basic Exemption Limit
  4. Taxpayer has opted out of presumptive taxation before expiry of 5 years

However, in your case since there are losses and total income is more than basic exemption limit, Tax Audit is recommended (not mandatory as per the section).

You can also send an email to help@quicko.com. Someone from our team will get in touch with you to understand your income situation and suggest an appropriate option.

As audit is not I applicable I tried to file it shows as profit is below 8% of turnover need audit
But my total income is 194000 below 2.5 l so now should I file itr or can leave

Hey @mukhilan,

Tax Audit will not be applicable to you since your income is less than the Basic Exemption Limit. The error that you are speaking about is a bug in the IT utilities. The FM had summoned Infosys CEO recently to address issues like these. The FM has assured us that all the issues will be fixed by 15th Sept, 2021.

I understand but I asked total income less than 2.5 l should I file itr

Hey @mukhilan, yes, it is recommended that you file your ITR since you also have trading income under both the speculative and non-speculative section. Also, you will be able to carry forward your losses by filing your ITR and disclosing your losses.

After filling all details it is automatically set off and final income comes as 194000 profit then according to itr rules my total income is less than 2.5l so I come under basic exemption limit
Do I still need to file as I’m having only 1.9l profit not loss so I don’t have any loss to carry forward
File itr or ignore

@mukhilan it is recommended that you file your ITR.

Is it mandatory to have a DSC in case of a tax audit? I started trading F&O last year, and this will be the first time I’ll have an audit done.

If yes, any recommendations on where to get the DSC from?

@Maharshi_Shah @Nireka

Hi @Veejayy,

Yes, it is mandatory to have a DSC in case of tax audit.

Here’s how you can register a DSC on the new IT portal

In case you need help with getting a DSC, you can get in touch with us and we’ll be happy to help :slight_smile:

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Hey, where is it mentioned that if profit is less than 6% of total turnover and Total income exceeds exemption limit, tax audit is necessary ??. Sec 44AB(e) doesn’t mention this. It specifies that if you opted for 44AD for 1 year then you can’t opt out for next 5 years and if you want to opt out, tax audit will be required.

But I am not able to find why tax audit is mandatory if profit less than 6%. Where is it mentioned.

Afters hours of research found this.

1.If you are a Fno trader classifying this income under business for a salaried person. The limit has been increased to 10Cr provided you don’t make any cash transactions >=5%.

Only turnover more than 10cr you will need an audit(should not have opted for sec 44ad presumptive tax scheme for last 5 years).

  1. If you have opted for presumptive tax scheme you need to show the profit of 6%(since we are presuming the income and paying tax only on this income at fixed percentage).

In this case you make a loss then you have to go for audit - also the turnover should be less than 2Cr - here the audit is applicable.

  1. Also that your net income if is more than 2.5 LPA and you opted for presumptive tax scheme then audit is applicable.

  2. If your net income is more than 2.5LPA but you have not opted for presumptive scheme and have incurred loss then just file ITR-3 - NO need for audit until 10Cr limit. You can carry forward and set off losses.

The only catch here is don’t opt for the 44AD until you make 6-8% returns on fno for 5 years consistently.

If you make a loss the next year and turnover is less than 2 cr then you have to get the audit done.

For business income less than 400cr the tax are also less. So don’t fall in trap of 44d if you are making losses.

Hope this helps

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You are right.

If your income is more than 2.5LPA as salary it is altogether a different segment.

If you had opted for section 44AD presumptive tax and then you make a loss which is less than 6% then you need to go for audit to carry forward the loss.

But since you have not opted for the 44AD under 44AB the limit is 10cr. So you can chill no need for audit. Loss can be carry forwarded on ITR-3 only.

Hi,

I have also spent numbers of hours on research to report the intra-day losses and I found most of the articles written by professionals on different platform are incomplete, which lead to small intra-day trader to go for audit even if they are not required to do so.

Most of the articles only mention first two conditions and say if you fulfill both of the following conditions, then you are required to get your books audit by a CA.

  1. Total income exceeds the basic exemption limit (FY 2020-21 - 2,50,000).
  2. Taxpayer has reported income/profit less than 6% of the turnover.
  3. Tax payer has opted-out presumptive taxation scheme in any of the last 5 years and now to report losses under the normal scheme.

The third point is the main point which covers most of the small intra-day traders and most of the people trading in share market definitely going to meet first two points.

Like; if you have never reported your losses in presumptive taxation scheme, then you can definitely report your losses without tax audit if your intra-day turnover is less than 10 Cr.

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Yes. I hope people understand this. Most people file ITR 1 previous year. And only this year started trading and get the fear of audit.

Just a random thought… Is it a wise option to trade in F&O segment as a registered Pvt. Ltd. company instead of an individual?
I am asking this question because of the followings -

  • Corporate tax for MSME is 22% vs personal income tax of 30% (assuming net income > 10 lpa)
  • tax holiday scheme of GOI entitles 3 out of 10 yrs of tax rebate

I am a novice in terms of business income taxation system, so please excuse me if both of my above logic is completely wrong.