This is indeed a very common confusion that people have when they incur losses.
Income from intraday or F&O trading counts as business income. Whether a loss can trigger an audit depends on one thing: have you ever used the presumptive taxation scheme for this trading income before?
If you haven’t: the answer is simple. Audit depends only on your turnover, not on whether you made a profit or a loss.
If you have: a loss can actually be the reason you need an audit. That happens if you report a lower profit than the scheme expects, and your total income is also above the basic exemption limit. If this is your situation, Is tax audit applicable for intraday/F&O trading? covers the presumptive taxation angle in detail.
If your turnover crosses ₹1 crore in a year, you need a tax audit. This limit goes up to ₹10 crore if your cash receipts and cash payments are each 5% or less of the total. Since F&O trades settle through your broker and bank, most traders easily meet this, so ₹10 crore is usually the number that applies to them.
Turnover calculation
You can know your trading turnover from the tax P&L report provided by your broker.
For F&O and intraday trading, turnover is calculated by taking the sum of absolute profits and losses from all trades. This means that you add the value of all profits and losses without taking the -ve sign into consideration.
Let’s take a simple example. You made three trades, had profit in the first two and a loss in the third. The turnover calculation is as follows.
Once, you know your trading turnover, you can easily determine your tax audit applicability as well. Even if you have losses of ₹10L but the turnover is below ₹10Cr, you don’t need a tax audit.
But remember, you need to file your ITR by the due date to carry forward your losses. Since trading counts as business income, your due date is 31st August if you don’t need an audit, or 31st October if you do.
Getting a voluntary audit done when you’re not actually required to have one doesn’t push your deadline to 31st October. That later date only applies if you’re genuinely required to get audited under the ₹1 crore / ₹10 crore rule. If you’re close to missing your date, focus on filing on time rather than counting on a voluntary audit to save you.
And if you want to check whether tax audit is applicable to you, our Tax Audit Applicability Calculator makes it easy to find out.
However, the rules are a bit different if you have opted for the presumptive taxation scheme. Here’s a detailed read on tax audits for intraday and F&O traders that covers it all.