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)

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)

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)

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

Nikhil Kaushik

Nikhil Kaushik (Expert)

23 April 2024 you are most welcome..

NB (Querist)

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)

02 July 2024 as we discussed earlier, tax audit would not be applicable in your case.