Whether Tax Audit required in this case

#1

Hii,

“But note that if your total income for the year (trading + Salary+ any other income) is less than Rs 2.5lks (the minimum tax slab), this would mean that there is no tax you have to pay, and hence no need of an audit.”

Last year, my turnover from F&O trading was around 1 crore 30 lakhs and I had a loss of 80K. My sole income was from an FD (around 2 lakhs for the last year.) I want to know whether I need a tax audit ( i am not interested in carry forwarding my losses).

#2

You need tax audit as you have loss in business income.
Regards

#3

You won’t need to go for tax audit if you declare a profit of 8% on F&O trading turnover of Rs1.3 cr which comes to Rs.10,40,000 and pay axes accordingly. You should go for tax audit as the cost of audit would be far lower than paying tax on 8% of the turnover.

#4

But since my annual income is below taxable bracket (less than 2.5 lakh), what is the need for audit?

#5

Forget Tax audit, You will also be able to carry forward FnO losses without it since your total income is less than 2,50,000 !

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#6

Your annual income for income tax purposes will be 12,40,000 if you don’t get audited. Read section 44AB of Income tax act. Here is a link https://cleartax.in/s/tax-audit-section-44ab

#7

And since your turnover is more than 1 crore, you’d have to get the accounts audited irrespective of your income from that business. Again, refer section 44AB.

#8

turnover for digital transactions is 2 crores, not one crore…

#9

I visited the income tax department bangalore, they were a bit clueless about rules. Finally they said if turnover > 1Cr have an audit, or else dont get audited. In the rule book they opened, only 1Cr was mentioned.
I am trying to access those section 44 webpages but its not opening.

#10

Above 1 crore turnover it’s compul Audit the books of accounts u/s 44AB and if it’s less than you can check 44 AD, AE, AF, ADA

#11

Simple thing is… if u are having more than 2 cr turnover in business u have to get ur accounts audited irrespective of profit… and if the turnover is less than 2 cr tax audit is mandatory if and only if the profit declared by u is less than 8 percent of turnover…

#12

Sir
I have traded in banknifty options and according to my profit and Loss account from the broker the loss is 1.75 lakhs and turn over 3 crore.

I have no other income

Do i need to file IT return
I am confused as people say that if turn over is more than 2 crore one has to get books audited for filing.
I do not know even where can I get the account books to be audited

What should I do. Can please somebody advise me?

Sebastian

#14

With Options trading, you’re essentially running a Business and the same should be reported as Business Income. And naturally, you’d require to get your accounts Audited for the same as Turnover exceeds 1 Crore. Trust me, getting an audit is worth it because in case the Income Tax Department decides to scrutinize you, it’ll cause a headache. Apparently, Commissioners get incentives for ruling cases in favor of the ITD, so I’d advise against skipping an audit just for the sake of saving some money. Check platforms like cleartax quicko etc for pricing, they’re usually cheaper than others. You can also claim the audit fees as part of expenses against other income sources and carry it forward for 8 years - So it’s not much of a loss compared to the risk involved.

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#15

Filed w quicko last 2yrs, they do the entire thing for me for 10k(audit+filing). Zerodha pimps cleartax a lot and they charge around 13k for the same thing.

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#16

@canismajoris - THIS. You can’t say no to tax filing simply because your net income falls below 2.5L. With your turnover exceeding 1 Crore - how do you think the Income Tax dept will treat some business owner with a turnover of 1.3 Crore skipping filing taxes/audits?
With digitisation of records, Department probably knows the fact you’re an active trader and will come after you in case you don’t file. Penalties will be much more than what a simple audit will cost you today.

#17

A fellow trader recco’d me quicko last year, costed me same. It’s a smaller firm based out of Ahmedabad and they treat you really well, for what its worth. Cleartax got back after two days after I paid for their plan

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#18

I would like to know how you guys are calculating the turnover in FnO. There is a lot of confusion regarding the same. Some say that the squared profit or losses are added to calculate the turnover. Infact zerodha also calculates it that way. But some CAs say that the total buy and sell values are added to find the turnover. If this is the way then the turnover will cross 1 crore in just 2 or 3 days.

Please let me know @sreedas @VS1 @vivek.p @premdhfm @TAXIQ.IN @p699 @namitrathore

#19

From what I know, futures its supposed to be absolute profits and for options it is total sell value + profits.

#20

Hello!

You need to understand the following income tax provisions applicable in your case:

  1. Options trading would be considered a business income under income tax

  2. Tax calculation should be based on income tax slab rates. Since there is a loss and there is no other income, tax is not required to be paid

  3. The loss of Rs.1.75 lacs can be carried forward for 8 years. It can be set-off against future profits to reduce tax liability in future

  4. Turnover calculation - turnover under income tax does not mean sales turnover.

  • Turnover from Options Trading = Absolute Profit + Sales

  • Absolute profit is the sum of positive and negative differences. Eg: Profit from transaction 1 is Rs.20,000 and loss from transaction 2 is Rs.5,000

    Realised Profit = Rs.20,000 - Rs.5,000 = Rs.15,000
    Absolute Profit = Rs.20,000 + Rs.5,000 = Rs.25,000

  1. As you mentioned that the sales turnover has crossed 3 cr, turnover as per income tax would be more than 2 Cr thus attracting tax audit

  2. You need to comply with following income tax provisions:

  • File Income Tax Return. Due Date for FY 18-19 is 30th September, 2019
  • Maintain books of accounts u/s 44AA
  • Get books of accounts audited u/s 44AD
  • Appoint a Chartered Accountant - to prepare financial statements, prepare & file tax audit report and prepare & file income tax return

If you need any assistance or help with tax filing, write to me on sakshi.shah@quicko.com

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#21

ICAI guidelines on tax audit are clear and accountants follow the same. In case of F & O its settlement losses and profit itself is turnover. for the tax audit to be done or not , you need to add sum of Settlement profits and losses.

Search word: Derivatives, futures and options

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