Yes, a tax audit will be applicable. Once the presumptive scheme is opted for in any financial year, it must be followed for five consecutive years. If it is not continued, a tax audit becomes mandatory.
Yes, STCG can be treated as normal business income instead of capital gains, provided this approach is followed consistently in subsequent years.
Yes, professional income can be reported under the presumptive scheme, as ITR-3 includes both normal business income and presumptive income.
If STCG is treated as business income, it will be taxed at slab rates. Since the total income is below ₹12 lakhs, you can claim rebate under Section 87A, resulting in no tax liability.
Thanks
Yes, because once opted for presumptive it needs to be opted for 5 consecutive years, if not opted then tax audit becomes mandatory irrespective of the amount of turnover.
Assuming, one reports a profit % less than the presumptive rates (6%/8%/50%) used earlier.
Opting out + reporting a Higher profit means tax audit is applicable only based on the turnover condition, not because of opting out. Here, Turnover becomes the criteria, not the action of opting out.
I.e., Tax audit applies only if you satisfy both conditions of, Opting out and claiming lower profits. The act of opting-out doesn’t automatically mandate tax audit, if you are reporting a higher profit than the profit % reported under presumptive taxation.
I.e., One cannot keep switching between presumptive taxation and normal taxation for the benefit of oneself, however, if the switch from presumptive to normal taxation results in the benefit of the Govt, by the way of higher profit %, the tax audit is not required.
Tax Audit Applicability
A tax audit is only applicable when you opt out of presumptive taxation (Section 44AD/44ADA) and report profits lower than the prescribed presumptive rate (6%/8% for business, 50% for professionals).
Key Aspects of Tax Audit Applicability:
Opting Out + Lower Profit: If you have previously claimed presumptive taxation and decide to report lower profits, you must maintain books of accounts and get a tax audit done.
Opting Out + Higher Profit: If you opt out but still report profits equal to or higher than the 6%/8%/50% rates, a tax audit is not mandatory solely due to the opt-out, provided your turnover is below the regular audit threshold.
The 5-Year Lock-in Rule: Under Section 44AD, if you opt out of the presumptive scheme, you cannot claim it for the next five years, which often triggers the audit requirement if your actual profits are low.
Thresholds: Regardless of presumptive taxation, a tax audit is mandatory if business turnover exceeds ₹1 crore (or ₹10 crore if 95% of transactions are digital) or for professionals with gross receipts over ₹50 lakh or ₹75 lakh if 95% receipts are digital.
In summary, the audit is a consequence of “opting out + claiming lower profits,” not just the act of opting out itself.
Thank you. Previously I used to submit ITR-4 treating my professional income as presumptive, But now I am also having business income from stock trading both intra and short term. Since I can show the professional income under presumptive and stock trading under business, I think no audit is required. Am I correct? @Quicko@SG_13
IMO, Yes, audit is not required based on the given info.
Since you are not opting out, and continuing to show your professional income under Presumptive taxation, you are not liable for audit, provided your business income is within the turnover limit.
You could report any equity intraday income under Speculative Business income.
You can report your trading and FNO intraday income under Normal Business income.
In addition to the above, you can also report your Capital Gains/Losses, if any, in ITR 3.
Audit requirement depends on one key fact: did your previous ITR 4 include business income under Section 44AD?
If your previous 5 year ITR 4 had only professional income under 44ADA (no 44AD for business):
You have never opted for Section 44AD. Therefore Section 44AD(4) — the five-year lock-in provision — does not apply to you. Also, no audit is applicable. If your previous ITR 4 included business income under Section 44AD:
This is where caution is needed. If the assessee opted for Section 44AD earlier and now reports profit below 6%/8% or a loss, audit under Section 44AB(e) becomes mandatory — provided total income exceeds the basic exemption limit.
At your income level , total income does exceed the basic exemption limit. So if you had 44AD last year, audit would be triggered even though your turnover is on lower side. Practical advice: Check your ITR 4 schedules carefully. If it shows only 44ADA (professional), you are safe. If it shows 44AD for any business activity, consult a CA before filing — audit may be mandatory.
From another practical perspective, considering that the turnover is very small and the tax impact is negligible, it is advisable to declare income at the presumptive rate of 6 percent provided 5 year rule is not broken. By doing so, the assessee can avoid potential audit implications and litigation risk. Although this approach results in the loss of the benefit of carrying forward the losses, the compliance simplicity and avoidance of audit generally outweigh the minimal tax benefit if any associated with such a small loss.
Therefore, where turnover is minimal and the overall tax liability is nil or insignificant, declaring presumptive income at 6 percent is a more practical and risk-averse approach, even if it leads to forfeiture of the loss carry forward.
Question 2 — Short Term Trades: STCG or Business Income?
Both positions are legally valid. Your choice to show it as business income is permissible and defensible.
Question 3 — Professional Income Under 44ADA While Trading Under Normal Books
Yes — fully permitted. This combination is explicitly supported by ITR 3.
**Question 4 — NIL advance tax liability as calculable easily.
I am Yashdeep Kothari, a Chartered Accountant and SEBI Registered Research Analyst (INH000021270). I focus on taxation, compliance, and financial advisory, with an emphasis on clear legal interpretation and practical, defensible positions. As a SEBI Registered Research Analyst, I operate within a regulated framework, ensuring objective and disciplined financial analysis.
In case it wasn’t clear, business can also be treated as presumptive under 44AD - just pay 6% of turnover. I would go with showing
STCG as Capital gains (if you choose to show it as business+presumptive here, turnover(calculated as full sale value of all sales) will be very large. 6% of it may be high. Also, if sales are too high, turnover may hit mandatory audit limits)
Thank you very much for nice explanation @yashdeep_kothari ji. Actually I have been showing income under section 44AD (TUITIONS) more than last 18 years in ITR-4. Now I would like to show this income under 44AD only (but now in ITR 3) since the profit is more than 70%. The only extra one is stocks trading income from this year onwards. This I would like to show under business income in ITR-3. So now I would like to get clarity - whether audit is required or not since I am moving from ITR-4 to ITR-3 and one income is under presumptive and another under business income. Thank you once again. @BB789@Quicko
Yes, this is what I was thinking. Dont we have the problem with AIS - which shows something else?
Still can I use ITR-4? Is there any provision to show the stock trading income in this form. Or I have to move to ITR-3?
Stock trading business income can be shown as presumptive income at 6% in ITR4(44AD as well). But as I said, showing it as STCG will reduce taxes for you. I don’t think think there’s a CG section in ITR4. If there’s not, you can move to ITR3.
Presumptive is just assumption. AIS is not a issue as can be seen in court cases above. Declaring 6% even if you made loss won’t get you in trouble.
You cant choose 44ad businesswise. You can show profession under 44ada but for stock trading and tution income if reported under b&p head and if consolidated net profit ratio is below 6 and 8 percent - audit would be mandatory. Another important aspect- If your underlying records shows profit ratio more than 6 and 8 percent you have to declare higher profit ratio. Your net assets should align in proportion to your declared itr income. Thank you.
Thank you. Actually what is my intention is to show the stock trading, short term profits under business income and the tuition income under presumptive. The question is in case of presumptive the profit is around 70% but incase of stock trading income the profit is not much less than 6%. That is why I have been asking whether tax audit is required or not. But you suggestion to show everything under presumptive is very nice. Is it possible to show the income from stock trading under presumptive? If so then what is the sub head - 44Ad or 44ADA? @yashdeep_kothari@Quicko@BB789
Thank you. for the last 18 years I have been showing my income under coaching centers and tuitions under 44AD in ITR 4. Now also I am going to show the same. There is a provision for tutions and coaching under 44AD
@Quicko I think you did not follow my question properly. I am not discontinuing. The income from my profession will be shown under 44AD as usual. But adding extra sub head for stock trading - not under presumptive.
If the taxpayer is proceeding under the presumptive scheme, an audit is not necessitated. Simply changing the ITR form from ITR-4 to ITR-3 does not trigger the requirement for an audit under the Income Tax Act.