Shutting Down F&O Business

Taxation
1

I must be a SEBI datapoint for why F&O trades dont work with retail guys, but now i am interested to know what damage it has left behind from taxations stand point …

Story: So i traded F&O in current financial year and stopped with loss of 35K @ 1L turnover, with the applied rules of Income tax I need to file my ITR as Business Income with Tax Audit… i am clear till this point…
But in same financial year i also sold equity under 2L turnover and made 20K profit…

Question:

  1. Does the equity profit also fall under head Business income or i have choice that i can show it as STCG?
  2. As i also understand if i show it as Business Income in current financial year then in future i cannot show any equity buy sell as STCG is this true as per IT laws if i don’t trade in F&O again ?
  3. Is there anything from IT laws where we have to show that i am not doing this trading business any further in future?
  4. Also any rough price estimate of doing tax audit in mumbai?

I assume @Quicko can help here Thanks…

2

Hi @pyarlath

There’s no requirement for tax audit in this case. Turnover limit is 10 crore for applicability of tax audit.

It depends on how you want to interpret it, You can show it either as STCG or business income. General rule is, if there is significant churning and you want to treat as stock-in trade, then it can be treated as business income. else, you can show it as STCG. I would recommend you to consult with your CA on this matter.

Not true. There’s no rule as such.

There’s no such rule.

As tax audit is not applicable in your case, you can be relaxed about it.

If I’ve missed anything, @Quicko will help us out here

3

@pyarlath
Answer to your queries are:
a) Equity profit can be shown as Business income and STCG both subject to the conditions fulfilled in case of Gopal Purohit ( Bombay High court).
b) Technically no unless there is change in business and you will be filing Tax audit report next year.
c) Tax audit in Mumbai or any other city can start from Rs. 20000 onwards.
Regards,
Aditya

4

Thanks @Meher_Smaran for helping out but i think in my case there is applicability of tax audit 1) Since my profit is less than 6% 2) turnover is under 10cr and 3) Me being in old regime… this is what i read from @Quicko site according to section 44b or d… has that changed?

5

20K !! That price is too hard for a person who is beaten down by the system :smiley: and turnover of 1L

6

@pyarlath That is a general price charged by any CA firm including mine so in that case. It might get reduced but then that is usual fees for a basic tax audit. But yes, you may not be required to have conduct a tax audit as well so better to take a professional call on that

7

Hey @pyarlath,

As correctly mentioned by @Meher_Smaran, the turnover limit is 10Cr for audit in case of trading as all transactions are digital and not in cash. Rest everything is clarified already:)

8

Is this link incorrect then? Section 44AB: Tax Audit under Income Tax Act - Learn by Quicko its from 2021 Section 44AB(e)

1 Like
9

Is this recent rule change @Quicko? Earlier it was said that a trader with loss or less than 6% of turnover as profit needs an audit.

1 Like
10

Hey @pyarlath,

According to the article as well,

image
image1203×389 32.8 KB

As mentioned earlier, because in trading, 100% of the transactions are digital, the turnover limit is ₹10Cr.

11

what about freelance income and loss in FNO ? Does audit is applicable if there is cash receipts ?

can we file ITR with presumptive taxation for freelance and general for FNO ?

12

I̶ t̶h̶i̶n̶k̶ y̶o̶u̶ a̶r̶e̶ s̶h̶a̶l̶l̶o̶w̶ r̶e̶a̶d̶i̶n̶g̶ t̶h̶e̶ a̶r̶t̶i̶c̶l̶e̶ c̶h̶e̶c̶k̶ f̶o̶r̶ t̶h̶e̶ t̶r̶a̶d̶i̶n̶g̶ s̶e̶c̶t̶i̶o̶n̶ w̶h̶e̶r̶e̶ t̶u̶r̶n̶o̶v̶e̶r̶ i̶s̶ l̶e̶s̶s̶ t̶h̶a̶n̶ 2̶c̶r̶ i̶t̶s̶ w̶r̶i̶t̶t̶e̶n̶ w̶i̶t̶h̶ c̶l̶e̶a̶r̶ s̶e̶c̶t̶i̶o̶n̶ n̶u̶m̶b̶e̶r̶s̶ e̶t̶c̶… w̶h̶a̶t̶ t̶o̶ b̶e̶l̶i̶e̶v̶e̶…?̶

W̶h̶a̶t̶ i̶ u̶n̶d̶e̶r̶s̶t̶a̶n̶d̶ f̶r̶o̶m̶ t̶h̶e̶ a̶r̶t̶i̶c̶l̶e̶:̶
U̶n̶d̶e̶r̶ 2̶c̶r̶ t̶u̶r̶n̶o̶v̶e̶r̶ a̶n̶d̶ p̶r̶o̶f̶i̶t̶s̶ l̶e̶s̶s̶ t̶h̶e̶n̶ 6̶%̶ o̶f̶ t̶u̶r̶n̶o̶v̶e̶r̶ n̶e̶e̶d̶ t̶o̶ h̶a̶v̶e̶ t̶a̶x̶ a̶u̶d̶i̶t̶s̶. a̶n̶d̶ y̶e̶s̶ t̶h̶e̶ r̶u̶l̶e̶s̶ a̶r̶e̶ a̶l̶s̶o̶ a̶p̶p̶l̶i̶c̶a̶b̶l̶e̶ a̶b̶o̶v̶e̶ 1̶0̶c̶r̶ b̶e̶t̶w̶e̶e̶n̶ 2̶c̶r̶ t̶o̶ 1̶0̶c̶r̶ t̶h̶e̶r̶e̶ i̶s̶ n̶o̶t̶h̶i̶n̶g̶.

Ok that was a cheap trick @Quicko you just updated your article to reflect things that you are saying… what wrong with admitting the mistake or saying its an old article and things have changed… this is where people have trust issues…

But as they say internet never forgets: :slight_smile: old link which was causing the confusion now updated to more generic paragraph…

13

@Aditya_Mundada if you want to share & shed more light here and since you said you are affiliated to CA firm, & @Quicko seems to have conflicting directions…

For a person

  1. Under 2cr turnover
  2. Loss in trading ie: profits below 6% of turnover
  3. Using old tax regime.
  4. No cash receipts only Zerodha trades.

Does this person require tax audits?
Referring to the article above(2 yrs old) is there anything written in section 44AB or its subsections regarding this?

If you can help the community with current Financial year rules and amendment it will help

Thanks

14

@pyarlath
Hi, in the above mentioned case, I don’t think that tax audit will be applicable here.
We have filed ITR for clients with similar structure and the returns have been processed successfully. However, you need to understand that ITR 3 will be filed and you will be required to submit the financial statements in the ITR 3.
Regards,
Aditya

15

Seems like some important point you emphasising which i didn’t understand fully care to expand on it a little?

“However, you need to understand that ITR 3 will be filed and you will be required to submit the financial statements in the ITR 3”

Assuming these are zerodha statements and its says its my responsibility to be full transparent and not hide any transactions ?

16

As you will be showing F&O as business income. ITR 3 will be applicable. So if you read the instructions of the form, you might be required to submit the Financial statements i.e Profit and loss account and Balancesheet.

17

The one that come from zerodha are usually enough? or there is more to it?

18

Profit and loss account is fine but Balancesheet has to be prepared as it will be different.

19

Bhai Address dedo aur charge batao :slight_smile: anyhow understood & thanks for the help :slight_smile:

20

You can send an email at [email protected] . I will send my number over there and then we can talk about it. :slight_smile:

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