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Presumptive taxation & Tax Audit

This query is : Resolved 

Dear Sir / Madam,

Mr X is doing F&O trading since last 3 years. In first 2 years, turnover was less, though there was a loss in each year, he preferred to report on presumptive basis i.e. profit @6% of turnover.

However, in previous FY 2020-21, he over-traded in F&O segment and turnover increased enormously, also incurred losses and 6% of it looks more. So he doesnt want to report u/s44AD.

So, as per IT act, he is shifting from Presumptive taxation reporting to normal reporting, tax audit would be applicable.

I wish to know:
1) What kind of precautions to be taken in this type of tax audit i.e. arising out of change of reporting??

2) So if the tax audit is done for FY 2020-21, then what would be the position for FY 2021-22? Does he require to do tax audit for FY 2021-22 also??

Kindly guide me.


What is turnover for AY 2021-22?
As calculated for F&O? Not the trading value...

Sir, turnover is 3787015/- calculated as per ICAI guidance note.

As per the turnover, declaring 6% profit will be around 2.27 L, which is not too heavy to offer to tax, as compared to the tax audit to be carried for this year, and also next five consecutive years u/s. 44AB(e) r.w.t. 44AD(5).

Ohh tax audit for next 5 years also.... thats too much.... hahaha... I thought tax audit would be for switch over year only....
Sir, then its better to complete 5 years under presumptive taxation and switch to normal accounting from 6th year onwards and report loss if any in 6th year....

Read ...extract from FAQ .....
"If a person opts for presumptive taxation scheme then he is also require to follow the same scheme for next 5 years. If he failed to do so, then presumptive taxation scheme will not be available for him for next 5 years. [For example, an assessee claims to be taxed on presumptive basis under Section 44AD for AY 2019-20. For AY 2020-21 and 2021-22 also he offers income on basis of presumptive taxation scheme. However, for AY 2022-23, he did not opt for presumptive taxation Scheme. In this case, he will not be eligible to claim benefit of presumptive taxation scheme for next five AYs, i.e. from AY 2023-24 to 2027-28​.]

He is required to keep and maintain books of account and he is also liable for tax audit as per section 44AB """ from """ the AY in which he opts out from the presumptive taxation scheme. [If his total income exceeds maximum amount not chargeable to tax]

Thanks a lot Rambhia Sir for detailed reply.
I would ask him to complete 5 years of presumptive taxation and then switch to regular accounting from 6th year onwards...

Yes, that is best option available as on now...

Thanks a lot Rambhia Sir for guiding us.

My Pleasure ...

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