Opting our of sec 44AD
This query is : Resolved
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23 April 2026
Dear Sir,
Mr A is having professional income from the profession as specified u/s 44ADA. He also does F&O trading.
Since AY 2019-20, he has been showing F&O transactions u/s 44AD, declaring 6% of turnover as profit from F&O even though he is actually incurring losses. He earns Rs. 8 lakhs from professional activities.
Now, after 7 assessment years, from AY 2026-27, he wants to show actual losses from F&O activities. Can he opt out of Section 44AD without the applicability of audit?
Kindly guide.
Regards,
Suraj
Mr A is having professional income from the profession as specified u/s 44ADA. He also does F&O trading.
Since AY 2019-20, he has been showing F&O transactions u/s 44AD, declaring 6% of turnover as profit from F&O even though he is actually incurring losses. He earns Rs. 8 lakhs from professional activities.
Now, after 7 assessment years, from AY 2026-27, he wants to show actual losses from F&O activities. Can he opt out of Section 44AD without the applicability of audit?
Kindly guide.
Regards,
Suraj
23 April 2026
For AY 2026-27, this issue is governed by the Income-tax Act, 1961. In my view, if the assessee is already carrying on a specified profession covered by section 44ADA, then section 44AD is not applicable to him, because section 44AD(6) excludes persons carrying on profession referred to in section 44AA(1). Therefore, showing F&O income under section 44AD alongside 44ADA professional income is itself not the correct position.
If he now wants to show actual F&O loss, then the safer course is to file under normal provisions with proper books. If the case is tested under section 44AD lock-in, then audit would apply if section 44AD(4) is attracted and total income exceeds the basic exemption limit. For the professional receipts under section 44ADA, there is no 5-year lock-in, but if lower than presumptive profit is declared and total income exceeds the exemption limit, then books and audit would be required for the profession as well.
So, he can move out of presumptive reporting, but saying “without audit” is not safely correct. On these facts, the more defensible view is that audit / books compliance risk does arise, and additionally the earlier adoption of 44AD itself appears questionable because he was simultaneously carrying on a specified profession.
If he now wants to show actual F&O loss, then the safer course is to file under normal provisions with proper books. If the case is tested under section 44AD lock-in, then audit would apply if section 44AD(4) is attracted and total income exceeds the basic exemption limit. For the professional receipts under section 44ADA, there is no 5-year lock-in, but if lower than presumptive profit is declared and total income exceeds the exemption limit, then books and audit would be required for the profession as well.
So, he can move out of presumptive reporting, but saying “without audit” is not safely correct. On these facts, the more defensible view is that audit / books compliance risk does arise, and additionally the earlier adoption of 44AD itself appears questionable because he was simultaneously carrying on a specified profession.
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23 April 2026
Sir, this will be his 8th AY for reporting F&O transactions u/s 44AD, so the 5-year lock-in period is already over. So, can we say he can opt out of section 44AD, though his other income exceeds the basic exemption limit?
24 April 2026
Yes, lock in period is over, so based on other factors. tax audit is not applicable.
26 April 2026
Rambhia Sir, does it mean he can prepare P&L BS and claim the loss for FY 2025-26 even though his other income is above the basic exemption limit, without the requirement of an audit?
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26 April 2026
Yes, the loss will be first adjusted against other heads of income except salary income.
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27 April 2026
You are welcome.
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