Tax Audit requirement with losses in F&O and income from profession exceeds 8% of total

Dear All

I have losses on 3Lac turnover in F&O. The losses are say 30,000.

I have professional income - say 3Lac again against which I am showing expenses of 1.5Lac (net 1.5Lac)

So total turnover is 3+3 = 6Lac

But I will file return of 4.2Lac. Since my return of income inclduing both Business (F&O) and Professional exceeds 8% minimum, so would I still need to go in for tax audit?


Excellent explanation on z-connect


Hi Manish,

An Audit is required in the following 2 cases:

a) When the turnover is more than 1 crore rupees

b) When the turnover is less than 1 crore rupees AND the profit declared is less than 8%.

How to compute Turnover?


  • For Intraday equity — absolute sum of settlement profits and losses per scrip

  • For Delivery equity — sell side value of the stock

  • For F&O (Equity, Currency, Commodity) — absolute sum of settlement profits & losses for F&O) per scrip and the sell side value of option contracts

As per section 44AB Tax audit is required if the total turnover of business exceeds Rs. 1 Crore or gross receipts from profession exceeds Rs. 25 .Lakhs.

In your case as per section 44AB both the business and profession would not be covered under tax audit as it does not exceed the limit.

But there is another clause added to section 44AB that assessee carrying on business claiming income to be lower than 8% has to get his books audited

So losses from F&O trading i.e losses from business is covered under this clause and tax audit would be applicable.

And - " Tax audit for Income below 8% is not applicable for professional Income'. So you cannot club the business losses and professional income and check the 8% applicability. 

In conclusion tax audit is required for business but not for profession.


You would not need a tax audit. Income from business and profession comes under the same head. Since you income is greater than 8% of turnover, you will not need an audit.

Hi nithin,

Cleartax is stating that if business profit is less than 8% of trading turnover and income from other sources is above 2.5 lakhs , a tax audit is required.

But here you are saying that if total income (assuming 5 lakhs p.a salary and 1 lakh loss in F&O) is greater than 8% of turnover (assuming 4 lakhs turnover, and 32000 profit) , then no audit may be required.

Please help and kindly clarify.


Hey, looks like you are confused.

Firstly you cannot reduce F&O trading loss from salary income. This person has said it is professional income (which is essentially business income). Hence he can reduce his trading loss from professional income.

Yes, if your total business income is greater than 8% of turnover, no need of audit. But the important thing to note is that it is total business income, not F&O+salary income (as salary is not business).

okkk…thanks man… got it now !! … Can u please give an idea how much does tax audit cost…??

hmm… I guess around 7.5k to 20k

Hello @nithin sir
I have planned to claim a profit of 8% on my turnover instead of going for tax audit.
However, I wanted to ask whether there’s an angle to making this claim? As we know, claimed turnover will be matched by IT department with whatever is reported by exchange against my PAN number. Dont they match the claimed profit?? Or do they simply dont care as tax on hypothetical 8% profit is already being paid??

Secondly, How do offset my claimed 8% profit against the expenses like brokerage, telephone, etc. Do i simply claim them as a number or do i need specific proofs for them. How does IT department validate the expenses?

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If you pay more taxes than what you are required to, there is no need to have a proof for that. :slight_smile: What you need to understand is that this turnover calculation is only for audit requirement, IT department themselves don’t have any guideline on calculating turnover. You can calculate turnover with an aggressive approach to make it as low as possible, then show 8% of this as profit, pay taxes on it. You are not evading any taxes by doing this, u r actually paying more (since u r in loss, there is no tax to pay). Do speak to a CA once.

This 8% profit is after all your expenses. You can claim them as a number, but you need to have some kind a proof of this (debit on bank statement or whatever).

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Hi Nitin,

My turnover is less than 1 crore (35 lakhs) and incurred a loss of 2.5 lakhs. I have no income from any other sources, only a loss of 2.5 lakhs. Do I require an audit?, since my turnover is less than 1 crore and profit is less than 8% (2.5 lk loss) as my income doesn’t exceeds the amount chargeable to tax? Please help me

Not required. But still consult a CA and don’t forget filing your ITR.

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Hi Nithin, I am a salaried employee and I have F&O trading loss and turnover is below 1Crore. Do I need a tax audit? Please help

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It is best to have it audited. Meet any local CA and get this done. Suggest you to read through :

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