Tax Audit in Case of Trading in Shares

Neethi V. Kannanth | Last updated: 02 September 2021

Save Share

Quick Summary

Trading shares can be a way to earn additional income, but it's important to understand the tax implications. This article explains the different types of share trading, including delivery-based, intraday, and trading in futures and options, and how turnover is calculated for each. It also clarifies when a tax audit is required under sections 44AB and 44AD of the tax laws, and when it might not be necessary, particularly for delivery-based trades declared as capital gains.

With the increase in the awareness about the Financial Market more people are drawn towards Trading as it enables people to earn additional income over the regular income and also offers faster returns. What is the tax treatment for the earnings from the Trading? Whether the earnings from trading ar

Daily Limit Reached

You have reached your daily limit of 2 Free Articles

Subscribe to CCI PRO for unlimited access

Why Upgrade to CCI PRO?

No Ads
WhatsApp Broadcasts
Daily E-Newsletter
Unlimited Articles Access

BEST VALUE

2 YEAR PLAN

3,499

(Inclusive of GST)

1 YEAR PLAN

1,999

(Inclusive of GST)

View all CCI PRO benfits

Already a PRO member? Login here for an ad-free experience.

FAQ :

For delivery-based trading, the turnover is generally the total sale value of the shares, provided these trades are declared as business income.

Intraday trading is considered speculative income, and the turnover is the aggregate of both positive and negative differences from all trades.

For futures and options, turnover includes the total of favourable and unfavourable differences, plus any premium received on the sale of options. Reverse trades also contribute to the turnover.

A tax audit may be required if total gross receipts and payments in cash do not exceed 5% of total receipts and payments, with a turnover limit of Rs. 5 crores. It's also applicable under Section 44AD if turnover is less than Rs. 2 crores, profit is less than 6% of turnover, and income exceeds the exemption limit.

A tax audit is not required for delivery-based trading if the transactions are declared as capital gains or investments. If only capital gains arise, an audit is not needed regardless of turnover or profitability.