All you need to know on Tax Audit Applicability for Traders

Tax Audit Applicability for Traders and information on Tax Audit Return Filing for Traders


Tax audits have always been a source of consternation, particularly among investors and traders. A practicing Chartered Accountant examines and assesses a taxpayer’s books of accounts and reports the relevant information in the Tax Audit Report during a tax audit. The Tax Audit Report is subsequently submitted to the Income Tax Department by the auditor. In this article information about Tax Audit Applicability for Traders and Tax Audit Return Filing for Traders is mentioned.

Tax Audit Applicability for Traders Criteria

  • Five Crores Threshold Limit: If a person’s gross receipts and payments in cash do not exceed 5% of total receipts and payments, the necessary tax audit turnover limit is INR 5 Crores.

  • Section 44 AD: It applies if the tax audit turnover is less than INR 2 crore, the profit is less than 6%, and the total income exceeds the initial exemption (ultimately, when a person’s taxable income other than the loss from trading is more than the taxation slab).

  • Section 44AB: Taxpayers who earn money through equity F&O (Futures and Options), equity intra day, currency F&O or, commodity F&O must disclose it on their tax return as business income. Because all transactions are digital, the threshold for determining a tax audit turnover under Section 44AB will be INR 10 crore.

Tax Rules that Apply in Business for Audit purpose

  • Once your activity is classified as a business, you maybe subject to additional tax rules.

  • If your revenue exceeds INR 2.5 lakhs or gross receipts exceed INR 25 lakhs in any of the three preceding years, or in the first year if you’re starting a new firm, you’ll need to keep accounting records.

  • The above are the expanded limits that took effect on April 1,2017. Previously, the income limit was INR 1.2 lakhs and the gross receipts limit was INR 10 lakhs.

  • The restrictions of INR 1.2 lakhs and INR 10 lakhs, however, continue to apply to taxpayers who are neither individuals or HUF (Hindu Undivided Family).

  • These also apply to you if you are a person who runs a business, such as F&O trading. However, your bookkeeping will be easier.

  • The majority of the time, keeping your trading statements, expense receipts, and bank account statements will suffice. Your profit and loss account, as well as your balance, are created from these.

Tax Audit Return Filing for Traders

We all know that most taxpayers must file their returns by July 31st, but the due date for filing returns for those who require their books of accounts audited is September 30th. If a company’s turnover exceeds INR 1 crore, it is subject to audit. If this is the case, you must have your accounts audited by a Charter Accountant (CA) and submit the audit report with your tax return. The income tax rules impose fines if you fail to keep accurate books of accounts or do not have an audit performed.


Under Section 271A, the penalty for failing to keep accounting records up to date might be as much as Rs 25,000. Furthermore, for failing to have books audited under Section 44AB, a penalty of Rs 1.5 lakhs or 0.5 percent of gross receipts or turnover can be imposed under Section 271B.


Tax audits under Section 44AB are also required for taxpayers who choose the presumptive scheme of taxation but declare an income that is lower than the presumptive income and that exceeds the maximum amount not chargeable to tax, which is Rs 2.5 lakhs (after setting off Futures and Options trading losses or other business losses if any).


Important Note: With effect from AY 2021-22 (FY 2020-21), the Rs 1 crore threshold limit for a tax audit is proposed to be enhanced to Rs 5 crore if the taxpayer’s cash receipts are limited to 5% of gross receipts or turnover, and if the taxpayer’s cash payments are limited to 5% of the aggregate payments.

Provision for Setting Off and Carry Forward Trading Losses

The ability to benefit from losses you have suffered is the single most essential reason to file with F&O (Futures and Options) Trading.


Don’t worry if your company lost money; just record it on your tax return. It can be adjusted using income from other categories, such as rental or interest income (cannot be adjusted from salary income). Any unadjusted loss has an eight-year carry-over period. They can only be modified from non-speculative income in the future.


A loss through futures and options trading is classified as a non-speculative loss. Intra-day stock trading is regarded as a risky investment. And it is only possible to alter it for speculative income. Speculative losses can be carried forward for up to four years if they are unadjusted.


With the rising participation in capital markets, an official explanation by the Income Tax Department on the tax audit applicability, the nature of business codes, the calculation of turnover, and other issues would help to clarify income tax compliances.

Zarana Mehta: Zarana Mehta is an MBA in Finance from Gujarat Technology University. Though having a masters degree in Business Administration, her upbeat and optimistic approach for changes led her to pursue her passion i.e. Creative writing. She is currently working as Content Writer at Ebizfiling.
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