Requirement of Tax Audit to carry forward losses under F&O

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An individual trading F&O for the first time incurred a loss and wishes to carry it forward. They are unsure if this necessitates a tax audit, especially as their turnover is below £2 crore. While filing ITR3 is required, experts suggest a tax audit is not mandatory in this specific scenario, as the individual has not opted out of presumptive taxation in previous years.

NB (Querist)
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21 April 2024 I am salaried individual. Filing ITR2 for past several years. This is first year I have been involved in F&O trading (nifty index options trading). I have incurred a loss this year. Plan to carry forward this loss to next year. I understand I need to file ITR3. My F&O turnover is less than 2 Cr.

Can the experts advise if incurring an F&O loss and wanting to carry forward this F&O loss makes it mandatory to maintain books of accounts and get a tax audit done. There are conflicting opinions of experts on the internet. So clarification will help. Thanks.

Nikhil Kaushik

Nikhil Kaushik (Expert)
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21 April 2024 you may not required an audit., But you need to maintain books of accounts and file ITR-3 to claim carry forward of loss.

Happy to help you in case you need assistance for filing of the return.

NB (Querist)
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22 April 2024 Thank you Nikhilji. Appreciate it. Will certainly reach out for any assistance.

Nikhil Kaushik

Nikhil Kaushik (Expert)
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23 April 2024 you are most welcome..

NB (Querist)
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02 July 2024 Colleagues. Seek reconfirmation.

Income Tax provisions say: Trading Turnover upto Rs. 2 Cr: Tax audit is applicable if the profit or loss from F&O trading is less than 6% of the turnover, and you have opted out of presumptive taxation in any of the last 5 years, with total income exceeding the basic exemption limit.

In my case, this is my first year of loss under F&O. Therefore I could not have made any selection under 6% presumptive taxation scheme in past years. My current year F&O turnover is Rs. 32 lacs (absolute gain / loss). Even if premiums collected is included, turnover remains at Rs. 85 lacs (absolute gain / loss plus premiums collected). Income under other heads of income is greater than Rs. 2.5 lacs.

Given the above, is Tax Audit mandatory for me.

Nikhil Kaushik

Nikhil Kaushik (Expert)
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02 July 2024 as we discussed earlier, tax audit would not be applicable in your case.