Tax audit requirement for derivatives trading ( budget 2020) increased?

[skj.pro]

See, it does apply to trader of goods in a major way. Just that it can be applied to your derivative trades also

[siva]

@arvindnrm

does this include derivative trading ?

something for derivative traders there ? >

@Quicko

[Quicko]

Hi @arvindnrm,

In Budget 2020 (applicable for FY 2020-21 / AY 2021-22), the threshold limit for a tax audit for traders is increased from 1 Cr. to 5 Cr. provided following two conditions are fulfiled:

1. Cash sales/ turnover <= 5% of total sales,
2. Cash Expenditure <= 5% of total expenditure.

Yes, the above conditions will apply to derivative traders as well. Also, the due date for ITR Filing has been changed from 30th September to 31st October. However, a tax audit report needs to be submitted by 30th September.

Hope this helps. We at Quicko are on a mission to simplify taxes for all! You can either drop us a message requesting a callback or write to us on [email protected].We are on a mission to simplify taxes for all!

[HSL]

@Quicko

the above conditions will apply to derivative traders as well.

stock market traders do all the transactions via banking . So , no question of cash sales or cash expenditure !!
then , how can you say like this ? ? ?

[Quicko]

Hi @HSL,

The budget 2020 says that not only your cash sales but also your cash expenditure should be taken into account. A lot of full-time traders pay advisory fees, subscription fees via cash. Which they should avoid for taking benefit of increased turnover limit.

Hope this clarifies your doubt. We at Quicko are on a mission to simplify taxes for all! You can either drop us a message requesting a callback or write to us on [email protected]. We are on a mission to simplify taxes for all!

[arvindnrm]

thanks @siva Siva
& @Quicko

[arvindnrm]

@Quicko Another quick question : this thing also removed ( from audit requirement ) in budget 2020 ? >>>

If the turnover is less than Rs 5 crore, and if profit less than 6% of turnover and total income exceeds basic exemption limit

[nakrj]

@Quicko Whether the profit less than 6% of turnover criterion for audit has been dispensed away with for those with total income exceeding basic exemption limit ?

[Quicko]

@arvindnrm

@Quicko Another quick question : this thing also removed ( from audit requirement ) in budget 2020 ? >>>

If the turnover is less than Rs 5 crore, and if profit less than 6% of turnover and total income exceeds basic exemption limit

@nakrj

@Quicko Whether the profit less than 6% of turnover criterion for audit has been dispensed away with for those with total income exceeding basic exemption limit ?

Hi @nakrj @arvindnrm,

In the budget 2020, FM increased the threshold limit of turnover from INR. 1 Cr. to INR. 5 Cr. for a tax audit applicability . Provided your Cash Sales (Receipts) and Cash Purchase (Payments) are less than 5%.

There is a situation where if your turnover is more than INR. 2 Cr. but less than or equal to INR. 5 Cr. then Tax Audit is Not Applicable irrespective of profits/losses. Since the turnover limit in Sec 44AD is INR. 2 Cr. or less. And the turnover limit of Sec 44AB has been increased from INR. 1 Cr. to INR. 5 Cr.

This is an anomaly, where neither Sec 44AB nor Sec 44AD gets hit. Hence under this turnover limit, a tax audit is not applicable to taxpayer/trader irrespective of profits/losses. Here a taxpayer will not be able to file ITR-4. But will have to file ITR-3 without audit. Hence an amendment in the turnover limit of section 44AD is expected from INR. 2 Cr. to INR. 5 Cr. from CBDT.

Read More: No more Tax Audit for Business/Trading Income having turnover up to INR. 5 Cr…is it true?

[setia.sahil]

I am a salaried person. I invest in equity market directly as well as through mutual funds. I do not trade on intraday basis. But I do swing trade and the trade generally lasts for few week.Now I want to know how profit from swing trades will be taxed. Are the profits will be clubbed with my salary or do I Have to pay short term capital gains tax at 15%…
Thanks

[Quicko]

Hi @setia.sahil,

@Quicko

Income or loss from Swing Trading will be taxable under the head Income From Business and Profession . You need to prepare and maintain books of accounts for your trading activities. You can claim all the trading related expenses while preparing your books of accounts. Hence keep the invoices and supporting of all the expenses with you. For example, keep the invoices of fees paid to an advisor, software purchased for trading analysis, online subscriptions paid etc.

ITR-3 needs to be filed. And following is our article on Documents required for ITR Filing:

Documents Checklist for Trading Income

Hope this helps!

[arvindnrm]

thank you quicko for wonderful explanation & article

[arvindnrm]

wouldn’t tht be short term capital gain & charged @ 15 % since its equity trade ?

[Quicko]

@arvindnrm

thank you quicko for wonderful explanation & article

@arvindnrm

wouldn’t tht be short term capital gain & charged @ 15 % since its equity trade ?

@arvindnrm

Glad to help you. For determining the type of income under Income Tax, you need to keep in mind the intention with which the trading is done. In traders case, the intention is to earn profits from trades hence it is covered under the head Income From Business and Profession.

Hope this helps!

[Quicko]

@Vinay_S

In case of loss from FNO trading, you will need to file ITR-3 and tax audit will also be applicable.

Read More: Is tax audit applicable to traders in India?

For further queries, you can DM us at [email protected].

[Vinay_S]

Can i mention profit as 6% to avoid tax audit?

[Quicko]

@Vinay_S

ITR is nothing but reporting of your yearly incomes and losses. Hence you should report actual profit and loss from trading while filing ITR.

[trader_dude]

@Quicko

Can you describe why audit is required for traders?

Is there possibility to do frauds in our business? Since everything is electronic, there is nothing really to hide in our business. So why this audit is necessary for traders?

[Vinay_S]

Actually Gov’t should bring some changes like profit or loss just pull out report attach in itr 3 file it.done

[Quicko]

@trader_dude

@Quicko

Can you describe why audit is required for traders?

Is there possibility to do frauds in our business? Since everything is electronic, there is nothing really to hide in our business. So why this audit is necessary for traders?

@trader_dude

Audit applicability is determined as per Section 44AB and 44AD of the Income Tax Act. Hence unless the sections get amended by Finance Ministry, audit applicability will be present in case of traders.