I am a salaried employee ( 6 months in this financial year ). I have day Trading losses of 60000 with an annual turnover of 220000. Short term capital gains are also present.
I am writing here my understanding of taxation. Please correct me wherever i am wrong.
Day Trading is a speculative business Income. Tax audit is necessary in my case as total turnover is 220000 ( < 2 crores ) and Net profit is -60000 ( < 6% of Total turnover ). Use of ITR 2 is not possible if i report my losses.
ITR 4 is ruled out as I also have to report STCG ( Rs. 15000 ) under Schedule CG.
To be fully compliant, I have to use ITR 3 and get the tax audit done.
I am not interested to carry forward the losses and my Primary objective is to avoid tax audit. Here i seek advise from all of you. I feel, I have following options.
Use ITR 2, Report STCG and Salary income, Ignore day trading losses. ( Please remember i am not interested to carry them forward, I just want to avoid tax audit )
Use ITR 4, Report STCG under the head of ‘income from other sources’ and Pay taxes on 6% of my business turnover of 220000.
Use ITR 3, Report STCG and Salary under appropriate schedule. Though i have incurred loss from day trading ( Business ), I report profit of more than 6% of my annual turnover ( In this way i can avoid tax audit ) and pay required taxes. ( 6 % of 220000 = 13200, 20% ( Tax Slab ) of 13200 = 2640 which is gold when i compare it with Tax Audit hassles. )
Club the turnover and net profit from ‘Day trading’ and ‘Short term equity investment’, Declare myself as a businessman ( I feel i can do that as i have worked only 6 months this FY ) and Take presumptive business income route by using ITR 4.
Please advice me on what path to follow in order to avoid‘wrath of IT Department’ as well as ‘Tax Audit’. Any other suggestions except above are most welcome.
First thing we advise at is to file correct return where you declare all your Income /Losses while filing It returns. If you wish to avoid audit then you can declare 6% of turnover and on that you can pay the taxes as applicable by using ITR 3 where you can separate capital gain turnover. You should remember principle you follow now should be consistently followed.
Basically you are suggesting me to take path no 3 out of the all i have mentioned. Thank you very much for your advise.
I have few other questions :
Do IT Department have exact details of my annual turnover and losses provided to them by brokerage houses ?
What are my chances of receiving a notice from IT Department if i follow path no 3 ?
Assume I declare profit more than 6% of my turnover although i have incurred losses in actual and I receive any notice from IT department in future. Can i mention to AO that I did so to avoid tax audit hassles and I am already paying more taxes than I am liable to. Is it a valid reason ?
Do IT Department have exact details of my annual turnover and losses provided to them by brokerage houses ? The Stock Exchanges need to share the trading details of all PAN holder as AIR form. That data are available with IT department.
What are my chances of receiving a notice from IT Department if i follow path no 3 ? Getting Notice is random computer selection. In last two years , people trading in equity are getting more notices due to non declaration of Income after having huge transactions.
Assume I declare profit more than 6% of my turnover although i have incurred losses in actual and I receive any notice from IT department in future. Can i mention to AO that I did so to avoid tax audit hassles and I am already paying more taxes than I am liable to. Is it a valid reason ? The option is available to you as per act and you are using the same. You can, but the Sec 44 AD intention is unorganized sector who find tough to maintain books of accounts like small grocery shop , textile ships , small time manufacturers.
If I file my business income ( Day trading ) under section 44AD and STCG under ‘Schedule CG’ simultaneously using ITR 3, Does that mean i have to file my business income ( Intraday + FnO ) at least for next 5 years under this section only ?
What if i stop trading and Shift to ITR 2 next FY. Will i be debarred from using 44AD when just in case i incur minor business losses in future or Ban is applicable only when you keep filing your business income using ITR 3 but not under Section 44AD ?
As suggested by you, I am filing Speculative business profit ( Equity Day trading , No F&O ) using ITR 3 although I have made speculative losses. I have already filled BS and P&L in ‘No Account Case’ but when it comes to BP, I feel i have following two options -