Is Tax Audit applicable for Intraday/F&O Trading?

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.

:bulb: 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.

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Last year I filed a return under Presumptive Taxation for my F&O business. This year I have losses. Is audit applicable to me?

Hi @Zainab_Hawa1,

Yes, since you have losses from F&O business in this year, audit is applicable to you.

Hope this clarifies!

Hello
If Turnover is between 2 to 10 Cr and there is loss, then Tax audit is applicable or not ?

Hi @rajat_goyal1,

No, a tax audit is not applicable if the turnover is ₹2 crores - ₹10 crores and the profit is less than 6% of the turnover (including loss).

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Hi @CA_Niyati_Mistry,

I had an Intraday Trading in the FY22-23 and Total Turnover is -6 P&L is -217 as per Zerodha.

Now, when I’m filing my return it’s asking for a Tax Audit. Do I need to do a tax audit only for on trading?

Hey @Saurav_Gupta,

Yes, tax audit is applicable on the Intraday Trading only.

Hope this clarifies!

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@CA_Niyati_Mistry

Even if I have done it mistakenly :smile: ? I mean it’s just one trade that too a very small amount. Can I file without having it audited?

Thanks for you response.

Hey @Saurav_Gupta,

The amount of turnover is small but there might be a certain situation specific to you, because of which it is asking for Audit. I cannot give a view based on incomplete information.

However you can Ask an Expert and get your queries answered.

Hope this helps!

Hi Team,

In F.Y. 2022-23 I started my job and have salary of 10 lakh, and started doing F&O trading (turnover 70k), with a loss of 50k. Is Tax audit applicable to me for this AY 23-24 filing?

Hello @NavalKabra9

Since you have not opted out of presumptive tax scheme in any of last 5 years and turnover is below 1 crore, tax audit is not applicable.

You can prepare P & L, Balance sheet and file ITR 3.

In case you need any expert assistance for filing ITR 3, you can book a MEET using the below link:

Book a MEET

Thanks.

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is ITR3 started for the current year ?

Hi @HIREiN
ITD have not yet enabled filing of ITR 3.

However, you can prepare ITR on Quicko (DIY) as well as book a MEET where tax expert shall prepare the ITR and keep JSON ready! As soon as ITD enables filing, we can go ahead and file the same.

Thanks

I have few questions:

  1. What you mean when you say opted out of Presumptive Taxation?
  2. I had started trading in previous year . I have not opted for Presumptive Taxation previous year. This year my T/O from trading is Rs 3 Lakhs and there is loss.

Am I liable for Tax Audit ?

Hi @Ayush

Here are the answers to your questions.

  1. Opting out of the presumptive taxation scheme means either you have voluntarily opted out or your turnover has crossed the threshold limit and hence you will be paying tax as per the regular taxation scheme.
  2. For FY 2023-24, the limit for the presumptive scheme is 3 crore for business.
    For a turnover of 3 lakhs and a loss, an audit u/s 44AB is NOT mandatory.

Read more about Tax Audit under Section 44AB of Income Tax Act - Learn by Quicko

But as per the information shared by your site , if a person’s income is less than 6/8% or the person has a loss in a particular year , Tax Audit is mandatory (Total Income more than basic limit).Also the image shared on site , if income is below 1cr and profit is less than 6% , Tax Audit is applicable so does less than 6% includes loss too?
Can you please clarify the same as there is lots of confusion.

Hi @Ayush

Since you have not opted out of the presumptive tax scheme in any of the last 5 years and your turnover is below 1 crore, a tax audit is not applicable.

Also, if you have opted for the presumptive scheme, and your profit is less than 6%/8% (including loss) of the turnover, then a tax audit is applicable.

Hope this clarifies.

So suppose it is my first year of trading and also filing ITR and following are the details:

  1. Turnover - Rs 3 lakhs
    2a) Situation 1 - Profit of Rs 10,000 (less than 6%)
    2b) Situation 2 - Loss of Rs 30,000

As it is my first year of filing ITR and trading , do I need to get Tax Audit done as per provisions of Income Tax Act ?

Hi @Ayush

Assuming you’re opting for the regular taxation scheme since your turnover is less than 1 crore, and the total income exceeds the basic exemption limit, a tax audit is not applicable as per the Income Tax Act under both situations.

A presumptive scheme is introduced to give relief to small taxpayers from the tedious job of maintenance of books of account and getting the books of account audited.

Hope this clarifies.

Thank you so much :blush: for your answers and patience

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