Audit requirement for speculative business (intraday) in ITR3

I wanted to know what is the profit/loss figure that is checked in order to determine tax audit requirement for taxation. Let’s say my profit is 3000 for intraday which is higher than 8% turnover, in this case I don’t need any tax audit, also turnover is less than 1 Cr. However let’s say my expenses that I claim (computer, bills, subscriptions etc.) become greater than my profit, let’s say my expenses come up to 4000, in this case in ITR3 under “Income from speculative activity” I will get a negative number of -1000 (3000 gross profit - 4000 expenditure). This -1000 reduces my total tax payable, is this -1000 considered loss and will this require tax audit, or is profit/loss determined solely on the actual 3000 gross profit before claiming expenses?

@Quicko can you.

Hi,

If turnover is less than 1 cr and you have no other income, even in case of loss, ITR3 w/o audit can be filed. Further, for the purpose of determination of profit/loss, net business loss/profit has to be considered, i.e, after consideration of all allowable business expenses.

Regards
Ila Jindal
[email protected]

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Thanks for the clarification.

Hey,

The applicability of tax audit is determined on net profit after claiming expenses. Incase of trading, 6% rate is determined to calculate profit since trading is considered as a digital transaction. However, if you do not want to claim expenses, then you can go for ITR-3 without tax audit. If you opt to claim your expenses, then tax audit may be applicable as per the current guidelines.

Thanks for the clarification. One doubt. We have below option in Audit Information : Whether assessee is declaring income only under section 44AE/44B/44BB/44AD/44ADA/44BBA/44BBB . If one has Salary + Capital Gains + Interest Income + Trading in F&O, what should one select ? I am option for 44AD (NO audit and turnover < 1 crore , shown profit > 6%+ )

If you are opting for section 44AD you do not need to get your books of accounts audited. Since you are opting out of Tax Audit, audit information won’t be required.

So any one who wants to claim expenses - has to go for tax audit?

@curiousvi,

A trader can claim expenses related to trading when filing the ITR. Except when you opt for the presumptive taxation scheme.
Tax audit is applicable when:

  1. Profit is less than 6% of the turnover
  2. Turnover is above the threshold.

Learn about all the expenses a trader can claim here

You can use the below tool to determine if tax audit is applicable to you

I saw your YouTube video and it says we have to consider total sale value for short term equity transaction in to turnover but I also found that it can be considered as capital gain and we can choose not to include in business income.
So is it individual’s choice or we must by law have to add short term transactions sale value in to turnover calculations?

@curiousvi, The treatment of the sale of shares as capital gains or business income depends on the intention of the trade by the taxpayer.
One primary condition is the treatment should be consistent each year.

Here’s a read on the same

Your link does not give direct answer …I have done multiple short term trades including BTST …in fact that has made more than intraday or FNO so…I want to say my intent was capital gains but how do I prove intent?

So to my understanding if I treat as capital gains than it will be excluded from trading turnover correct? and that will make be eligible for presumptive filing …(because otherwise I don’t meet the requirement as turnover becomes more than 3 times compared to FNO/intraday

Hey @curiousvi

If you have carried out short term trades you can consider income from such trades as a capital gain income. You do not need to prove intent for the same because the usual treatment as per the Income Tax Act of this income is to consider it as capital gains.

If you consider this income as capital gains then you do not need to consider it in trading turnover.

If your turnover from intraday/FNO is less than INR 2 crores, you can opt for Presumptive Scheme for the same.

@Quicko, but the govt. has increased the audit limit to 10 crore from next financial year then in that case will this limit of 2cr will also get increased to 10cr for presumptive scheme ?

No, for presumptive scheme - the limit is still at Rs 2 Crores.

Hey @Stonecold

There have been no changes with respect to the Presumptive Taxation Scheme in Budget 2021. Under the criteria for opting Presumptive Taxation Scheme, your turnover from the business should not exceed INR 2 Crore.

Hope this helps!