Boss don’t go by everything youtube people say. Consult a CA. I highly doubt a qualified CA will advice you to evade tax by declaring low profits from trading in the markets. All transactions have paper trail. I really don’t know how the youtube people if they are doing it have not yet gotten any notice from IT department.
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I have been saying this so many times.
Most of them think that you can just apply 6 percent in turnover and pay tax accordingly.
If I am an option seller I can have 2 crore profit with a turnover of 2cr. So can I just declare 6 percent of 2cr as profit ? That’s 12 lakhs. Lol.
I am literally tired of explaining this to people. After all we when we look for answers in the net, we look for the answer we want.
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I had thought whichever is lower 
As I told above, we always interpret the way we want. And until we get that on the net we keep searching. 
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Ultimately, it’s about taking a chance…
It isn’t explicitly mentioned that you have to declare the higher profits (word used is ‘voluntarily’), if it was, this issue wouldn’t always keep coming up.
Even CAs have differing opinion about this, so it’s really upto you, though it isn’t really advisable & you should be mentally prepared to receive a notice if you do decide to go for it…
Also, check this thread…
As a trader you should be taking care of risk management. And an IT notice say 5 years down the line is a major risk - because you cant just say 'oh my bad, here’s the pending amount" - instead you will have to pay it with interest and maybe fine. That could be disastrous!
Can anyone decipher these hieroglyphics? Still can’t tell if there is any mention of business that make higher than 6/8% of turnover
You “had thought” wrong 
Such rules usually apply when you receive something, not when you have to pay 
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@Quicko @Jason_Castelino
Hi,
I am a fulltime regular profit making F & O trader since 7 years. I have no other income. I am posting here to clarify whether i am in the right path. Since FY 2021-2022, I am filing under presumptive taxation. I take the help of nearby CA for tax filing. Prior FY 2021-2022 I filed under regular business. In the middle of that financial year, I have closed my trading and demat account with a broker, and I had only the profit and loss statement excel and since the account is closed with the broker, i don’t have access to ledger statement of the broker. I contacted the broker, but they said since the account is closed, they cant do anything. I contacted CA and he said since the ledger is not available, i can opt for presumptive taxation and i don’t need to keep book of accounts and filed tax under presumptive taxation, my turnover was around 65 lakhs and gross profit was around 12 lakhs, and after deducting brokerage and other expenses, the profit came around 10 lakh and i paid taxes for 10 lakh income. For FY 2022-2023 i did the same for income of 11.5 lakhs and my return was processed. I am showing profits well above the 6 or 8% threshold, may be around 18 to 20%. i have interpreted 44AD profits as whichever is higher, so i have shown real profits.
My queries are
Q1. I saw in some of the posts in this forum, deductions are not allowed in 44AD, in that case do i have to show my gross profit without deducting my brokerage and other expenses like internet and telephone bills?
Q2. my CA quoted there was an advantage with 44AD that i can pay advance tax around by march 15, by which I can come to a conclusion, how much my income will be there for the current FY. In f&o trading, incomes are not consistent, for 3 qtrs. i may be in loss and in 4th qtr. i may be in heavy profits. This makes me pay advance tax with penalties if not opted for 44AD. for FY 2019-20 i had huge profits for the first 3 qtrs, i paid advance tax around 2 lakhs. 4th qtr was a disaster and i ended up with no tax liability. i had to wait around 1 year to get my refund, which was huge. already loss in 4th qtr and with 2 lakh dues to come, it was difficult for me to manage finances. So i was attracted to the method of advance tax in section 44AD. So is the advantage of advance tax without penalty true in 44AD?.
Q3. Apart from the broker related expenses, I incur additional expenses like attending traders meet or some kind or seminar at least twice in a year [digital transaction] . I have rented a small room situated in upstairs of a known person’s house, to work in it as a office by paying 5k per month including electricity expenses [cash transaction]. This was paid in cash. As the amount is less, the houseowner demands it to be given in cash. both the other expenses mentioned above, i.e. digital transaction not reflected in broker’s profit loss statement of around 30 to 40K and cash transaction of 60K [ no receipt] was deducted from the gross income and filed. Is this allowed ? My CA clarifies not to worry if rent receipt is not there , in 44AD as these are minor expenses.
will be happy and thankful to see my queries answered.
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From whatever I have understood from your post, you CA is guiding you rightly.
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Hey @hi_there,
What you have mentioned is correct, section 44AD is for individuals whose turnover is up to 2 crores and they have not maintained any books of accounts. With regard to your query,
- As per section 44AD since books of accounts are not maintained, one can not determine their business expenses. Hence while filing the ITR you just have to report your gross turnover/ receipts and actual net profit excluding all actual expenses incurred (subject to a minimum of 6% of your turnover as all transactions are digital). In the case of trading income, the financials can be maintained conveniently and hence actual profits can be reported under regular business income.
Note: If you opt out of the presumptive taxation scheme, you will be required to get a tax audit done and you will not be able to opt into the scheme for the succeeding five FYs. - Yes, 100% of advance tax can be paid until 15th March if you opt for the presumptive taxation scheme and there will be no penalty levied on the same.
- If you report income as per 44AD then in the ITR you don’t have to give a breakup for your expenses and hence you can enter the actual profits after reducing expenses. However, if you maintain regular books of accounts then you have to give a breakup of expenses and in case any scrutiny arises, the onus will be on you to provide proof to the ITD relating to such transactions.
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Hi @Quicko
Have read the full thread and have below questions. FY24 is my first year of reporting F&O income. In previous years I have had minor losses but have not bothered reporting them, given daunting nature of reporting (I refer to non-presumptive and was not aware about 44AD then)
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Since 44AD assumes presumptive income as a minimum fixed percentage of turnover, is it really possible to report losses under it? Logically you cannot have losses when there is presumptive income. How is it possible to setoff against losses in that case in later years. You also mention once we select a particular mode of reporting (presumptive), we are better off not changing it next year’s. So my concern that I select the right option to begin with.
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Since presumptive income comes under ITR4, should we filing ITR4 and not ITR3 (everywhere on internet it’s mentioned F&O is business income and needs to be reported in ITR3)
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Also hear experts in livemint etc saying 44AD is for small traders who don’t maintain books of account. But in our case broker keeps all accounts. Non-broker Expenses are separate, but does IT expect F&O Traders to consider their income as Presumptive? Although we report real profit and not 6% as stipulated as min under 44AD, will IT reject filing if we go for presumptive?
I would have preferred to go with non-presumptive but interest levied on taxes not advance paid quarterly is really troublesome. Ideally tax dept should change this rule since F&O income is not predictable within the year unlike Capital gains.
Hey @gpkallu,
Under section 44AD, you need to report 6% of the turnover as profits or actual profits, whichever is higher, as income. Moreover, you can not report losses and hence, you cannot carry them forward either.
ITR-4 can be filed when you have income from presumptive business or profession, salary/pension, one house property, and interest up to INR 50,00,000. However, if you have income from capital gains as well, you need to file ITR-3. But, you can declare presumptive income in ITR-3 as well.
You can report the actual profits. Moreover, if you opt for presumptive taxation, you need to opt for it for the next 5 financial years continuously. If you opt out, you will not be able to opt back in for next five AYs.
Hope this helps!
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Where is it written under 44AD “whichever is higher” has to be declared as income?
It however says “sum higher than the aforesaid sum claimed to have been earned by the eligible assessee “. Here the assessee has option to claim that he/she has earned more than 6 or 8% of turn over.
Where does it mandates declaring actual profit at all? Please be specific with reference from existing law and judgements?
Also, on opting 44AD, no further deductions are available under section 30 to 38 of IT Act. Then what is the logic behind declaring actual income under 44AD when you are not getting deductions benefits?
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There is a condition to it. all the transactions should be done via banking channels.
Hey @entice,
Yes, the turnover limits have been updated in Budget 2023 and will be applicable for FY 23-24.
I have one question…If we take section 44AD for share market income and show profit at let suppose 9 percent and actual profit is way more than that…How Income tax will know about it…We are not suppose to maintain any books of accounts…Even if we can get Actual income from broker…How income tax authority can compute actaul expenses as bank stat will have personal and business related expenses both in same statement and we are not rquired to maintain books under 44AD…So there is no way itr authority can compute actual expenses that too after many years later…What is your take in this.