44AD For FnO or Tax Audit ? Whichever is more safer to justify expenses?

Taxation
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Hey All,
I am a full-time trader, My FnO profits are 32 LPA+ , shorterm losses 6 LPA , And Intraday profits at 1 Lakh . FnO turnover :- 60 Lakhs .I filled my 2024-2025year return under 44AD . However I am confused regarding 2025-2026 ITR filling?

Had few business expenses, like employees on profit sharing, Office rents , Subscriptions , etc.

Now, Despite 32 LPA in FnO , I feel my profits are somewhere close to 17-19 Lakhs. And I am confused whether I should opt for 44AD or tax audit ( If I opt out for presumptive then mandatory )

  1. What is a more safer approach in showcasing expenses, Since I am not presenting books of accounts in 44AD , I fear that the AO might scruntinise me or request for some expenses due to the discrepancy between the actual profits and profits showcased on brokers?

  2. One CA recommended that if I opt for Tax Audit and showcase Share trading as an individual-based firm , I can set-off the short term loss with FnO profits by showcasing short-term as business income? Is that possible and a correct approach ? Can I also do the same in 44AD ?

Also, if I opt for this route, can the previous carried-forward short-term losses continue or will I lose the chance to claim them in future?

  1. If I choose the 44AD route, By declaring 27% of my turnover as deemed percentage. Can I be in any trouble whatsoever?

@Quicko @Jason_Castelino @nithin @BB789 @TAXIQ.IN @tax007

1 Like
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  1. There has been no documented court cases of AO disputing 44AD cover AFAIK, but there were some with unexplained cash deposits which were always ruled in the tax payers favor. Go with 44AD with 6%.
  2. You can do that even without audit and even with 44AD, AFAIK. But the problem with 44AD in this case is turnover would be based on share sell value and 6% of that will be too much. With 44AD, it’s better to show share trading as STCG.
  3. You only need to declare 6%. No point declaring 27%. Note that you still need to declare 6% even if you lost like -15% in the next years or in a black swan event. Account for that if you voluntarily chose a higher amount. You aren’t going to get a medal for declaring higher amounts.

Also

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Hey, Thanks for the reply.

I am also curious since FnO turnover is based on absolute value. I have multiple bank credits in my accounts, As per capital requirements, transfer of funds between family accounts to myself , repayment, constant deposits and withdrawls in broker etc. The total credits in my bank account might exceed 2-2.5 Crores. Now since the turnover reported will be 60 Lakhs as per absolute value. Can this high transacion value lead to any trouble ?

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Don’t know. if AO questions it, explain it what’s there to worry? It’s all legal right? They will also have bank records and who paid whom. Turnover calculation is provided by broker - so you have records to back it up. Pay 6% in the 27% and use the tax on the remaining 21% to pay lawyers, CAs - if AOs are hell bent on destroying you for whatever reason. Bending the knee or fearing what might happen isn’t the way to go, IMhO, unless you did something that’s illegal.