Submitted ITR 4 previous year (FY 2024-25). Now entered into trading this year (FY 2025-26).
My income
from other sources = around 6.25 lakhs
from professional services = 45 thousands (as 100% profit)
from intraday = loss of Rs. 4520 (turnover is around Rs. 9730)
From short term trade = Rs. 12560 /- (turnover around Rs. 185000/-)
I know that I have to use ITR 3. But my questions are:
Since there is a loss in intraday trade I cannot use presumptive option (due to 6% rule). So I have to show under business income which require books to keep. But do I have to audit the returns by a CA?
Do I have to show short term profit under STCG or normal business income? (I want to show it under normal business income. And would like to continue with this trend)
Can I show the income from professional services using presumptive option now? (trading under business income requiring books whereas professional under no books required in ITR 3)
If I have to show short term trading gains under STCG, then do I require to pay tax amount extra as advance tax or there is no need to pay tax as total income is under tax exemption slab?
Thank you very much. But I am confused. Whether audit required or not? I am now moving from ITR 4 to ITR 3. That means presumptive to business. Please clarify.
Not really. You can use ITR3 for presumptive and business. ITR3 is a full comprehensive form with many sections unlike ITR4. You can use presumptive for some business but not for others using ITR3. You can pick and choose. But once you opt out of presumptive for a particular business, you can’t go back in for 5 years.
Thank you very much. However, the question is regarding switching to presumptive (ITR 4) to business (ITR 3) regardless of turnover. It is a bit confusing. @Jason_Castelino@BB789@Quicko
To be clear, you can. 6% of 9730 is 583. It won’t change your tax slab, if you declare that as intraday profit. To compensate, you can also declare 50% of professional income as tax.
This was discussed many times. Only Jason has that view. The act doesn’t state anything like that. And I don’t think there’s any court ruling that ruled against claiming “50%/8%” regardless of actual profit/loss. The law allows claiming it and you can claim it, if you qualify.
That’s probably because you do not talk to a lot of CAs out there.
It’s the risk that you are taking for under disclosing your income. It’s your call. I and lot of other professionals might be wrong, but we wouldn’t take that chance of under quoting the income.
Investments come in AIS. When income declared is less than investments made during the year, SCN is very normal.
Presumptive taxation is designed to simplify life for small taxpayers, but it has sparked significant legal debate over the years—specifically regarding how “presumed” those profits actually are. Courts have frequently had to decide whether a taxpayer can be forced to explain specific bank entries or if the presumptive rate acts as a complete “shield.”
Here is a breakdown of the landmark and recent court rulings that have shaped the current understanding of presumptive taxation (primarily under the Indian Income Tax Act sections 44AD, 44ADA, and 44AE).
The “Shield” Against Further Enquiry
The most critical rulings involve whether an Assessing Officer (AO) can still make additions for “unexplained” cash or credits if a taxpayer has already declared income at the presumptive rate.
CIT vs. Surinder Pal Anand (Punjab & Haryana High Court):
This is the “gold standard” case for presumptive tax. The court ruled that once a taxpayer opts for Section 44AD (8% or 6% profit), they are not under any obligation to explain individual cash deposits in their bank account, provided those deposits have a nexus with the business.
Thomas Eapen vs. ITO (ITAT Cochin):
The Tribunal held that the provisions of Section 69A (unexplained money) cannot be applied to make additions for undisclosed cash credits if the taxpayer is a small trader falling under Section 44AD and has offered income on a presumptive basis.
Nand Lal Popli vs. DCIT (ITAT Chandigarh):
The court affirmed that where the AO accepts the profit declared under presumptive taxation, they cannot make separate additions for “unexplained expenses” under Section 69C, as the presumptive rate is deemed to cover all business-related debits and credits.
Eligibility & Wrongful Claims
Recent rulings (2024–2026) have focused on taxpayers using the wrong forms or claiming schemes they don’t qualify for.
Pramod Kumar Tiwari vs. DCIT (ITAT Raipur, 2022):
The court clarified that Commission and Brokerage income does not fall under Section 44ADA. The taxpayer had filed under the wrong form (ITR-4), and the court upheld that such income must be taxed under regular provisions (ITR-3) regardless of the turnover amount.
Educe Consulting vs. ITO (ITAT Surat, 2024):
The court ruled that the Centralized Processing Centre (CPC) cannot automatically treat a taxpayer as assessable under Section 44ADA simply because TDS was deducted under Section 194J (Professional fees). The nature of the actual work determines eligibility, not just the TDS section used by the payer.
Deductions and Depreciation
A common point of friction is whether any other expenses can be claimed on top of the presumptive rate.
CIT vs. Sahu Constructions Pvt Ltd (Allahabad High Court):
The court held that when profits are computed on a presumptive basis, no other deductions, including depreciation, are allowable. The 8%/50% rate is inclusive of all allowances.
Note: For partnership firms, salary and interest paid to partners used to be deductible from presumptive income, but legislative changes have largely limited this.
Recent Legislative & Judicial Shifts (2025-2026)
With the introduction of the Income Tax Act, 2025 and the Finance Bill, 2026, the landscape has shifted:
Category
Provision / Ruling Update
Turnover Limits
Increased to â‚ą3 Crore (Section 44AD) and â‚ą75 Lakh (Section 44ADA) if cash transactions are < 5%.
Non-Residents
Budget 2025/26 introduced Section 44BBD, a presumptive tax (25% of gross receipts) for non-residents providing tech services for electronics manufacturing.
Audit Requirement
Courts have upheld that if you declare less than the presumptive rate, you must maintain books and get an audit, regardless of turnover being below the threshold.
Summary Checklist for Taxpayers
Nexus is Key: If you have a cash deposit that has nothing to do with your business, the “Surinder Pal Anand” shield may not protect you.
The 5-Year Trap: Under Section 44AD, if you opt out of the scheme in any year, you are barred from re-entering it for the next 5 assessment years.
I did. My original AI didn’t say anything I already didn’t know. GPT5 made a strange claim that F&O cannot be presumptive income. So, I asked it to cite sources. It backtracked and said some CAs/ICAI have that view. But it still couldn’t cite any sources.
Even if you do have court rulings in favor of your view, the opposing court rulings are many more by higher courts. But If you have 0 court rulings in your favor, it’s not even up for debate, when the act doesn’t “explicitly” state anything to the contrary.
But as an assessee do you want to go through that pain. I have always said the law doesn’t disallow. But do you wanna take a chance of under declaring your income?
Tell me what does income tax act say about fno turnover. How is it supposed to be calculated?
The tax department is politically motivated. You could’ve declared everything perfect and If I(as a AO) want to mess with you, I can. I have power and the law is ambiguous and I can issue SCN and file cases.
it’s not under declared, it’s never computed. It’s just claimed at 6%/50% of turnover. If the point of 44AD is reducing compliance, you don’t have to go into the nitty gritty details of profit calculations, just turnover calculations. You don’t even have to look at anything else.
I believe it says nothing. The current turnover calculations comes from ICAI Guidance note on Sec 44. It’s still just a guidance. I don’t think it’s even the right way to do that. I think if you want you can calculate turnover any other way. For example, in strategies like iron condors, one leg will always have positive and negative value. I think it should be calculated as a whole by summing up positive and negative to arrive at turnover of one leg and not the absolute sum. It’s because it was never the intent of trader to make loss in two parts of the same leg. That’s just my opinion. Anyway, I haven’t heard any cases in “Fno turnover calculations”. So, either AO never questioned it or it never went to court. Just as your view here, I don’t think there’s anything illegal if a person calculates turnover this way either - with the risk that if the highest court were to strike down your way, you might have to pay extra. It’s hard, but if you’re afraid of tax legal complications, you’ll never make money.
Exactly. So when it’s beneficially we take what icai says.
Here we don’t agree.
Anyways. I will repeat again. Law doesn’t mention fno specifically. So it’s open for interpretation.
I suggest my clients to take the route of proper declaration of income. Some still want to go for presumptive and i file returns for them too.
But laying out pros and cons is my responsibility. Ultimately it’s for the assessee to take a call.
If possible, could you link the guidance note or pdf where ICAI says presumptive should not be used for fno. If it did, I think major tax filing institutions(like cleartax, @Quicko ) would have said it. But they all continue to claim presumptive for fno publicly.
Sure. Why do you want to take the view where it’s not beneficial for you. Obviously if you’re small fry, try not to stand out too much or have enough money to fight cases…
Hahaha. I think my question is sidelined or I don’t understand anything. @Jason_Castelino@BB789 . Just I want to know whether in my case do I require any audit?