This is a common question amongst stock market traders, let me try to break it down in this thread.
See like any other business, people who engage in intraday or F&O trading might have to go for a tax audit. However, this depends on a few criteria.
For starters, a tax audit is review of the books of accounts by a Chartered Accountant (CA) to verify its accuracy and compliance with income tax laws.
Now the primary factor to determine audit applicability for traders is their turnover.
For any business in general, a tax audit is required if their turnover exceeds ₹1 crore in a financial year. However, this limit jumps to ₹10 crore if more than 95% of business transactions are done through banking channels. And since intraday and F&O transactions are digital in nature, the turnover limit is ₹10 crore for stock trading businesses.
You can refer to the table below.
For example, if you’re a full-time trader and your F&O turnover is ₹11.5 crores, you are required to get your books of accounts audited, as it exceeds the ₹10 crore threshold.
Apart from trading turnover, there is another reason you might have to conduct a tax audit i.e. presumptive taxation.
Audit applicability for business declared under the presumptive taxation scheme
For some context, presumptive taxation scheme is a way to simplify tax compliance for small businesses and professionals. It allows them to pay taxes based on a certain percentage of their revenue/turnover, eliminating the need to maintain extensive books of accounts and conduct audits.
So, if you’ve opted for this scheme in a previous financial year and now wish to opt out, you must undergo a tax audit for the next 5 consecutive financial years.
Moreover, there’s a pre-defined turnover limit up to which you can opt for presumptive scheme, and if the turnover exceeds the limit, you will have to get a tax audit done.
Once you’ve determined that a tax audit is required for your trading business, make sure to file the audit report by 30th September and submit your ITR by 31st October of the respective assessment year.
People who miss the 31st July deadline are not allowed to carry forward their losses or switch tax regimes. So, if you are a trader and wish to carry forward losses and avoid late filing penalties, opting for a voluntary audit can extend the ITR filing deadline for you until 31st October.
Here’s a video that answers everything about tax audits.
? I mean it’s just one trade that too a very small amount. Can I file without having it audited?
for your answers and patience