Tax Audit F & O Trading
This query is : Resolved
22 December 2021
Dear Experts,
Please guide me
How to Prepare Trading & Profit & Loss Account for F &O Trading in Case of Tax Audit
Futures and options (Non-speculative transactions)
In Normal scenario, turnover for Futures & Options is determined as follows –
o The total of favorable and unfavorable differences shall be taken as turnover
o Premium received on sale of options is also to be included in turnover
o In respect of any reverse trades entered, the difference thereon should also form part of the turnover.
For understanding the above Turnover is taken as “Calculated Turnover”.
My question is when an assessee opts for Tax Audit in F & O Trading; Turnover to be credited in Trading & Profit & Loss Account shall be
1. Normal Turnover or
2. Calculated Turnover.
If we have to go for Option (1), Normal Turnover shall be credited in the Trading & Profit & Loss Account and normal Purchase value along with all the expenses such as Securities Transaction Tax, Stamp Duty, Brokerage, Exchange Transaction Charges, GST, SEBI Turnover Fees etc. shall be debited in the Trading & Profit & Loss Account , the balance being the Net profit/Loss.
But if we have to go for Option (2), Calculated Turnover shall be credited in the Trading & Profit & Loss Account.
But how to account for the difference in Turnover (Normal Turnover Vs Calculated Turnover) .
• Suppose Normal Turnover (Sell value) in case of F&O Trading is Rs. 250.00 Lacs and Calculated Turnover comes at Rs. 50.00 Lacs
• Now, since we have to credit Rs. 50.00 Lacs in the Trading & P & L A/c (Calculated Turnover), How to adjust the difference of Rs. 200 Lacs (250 – 50)?
• Shall the difference be adjusted with the normal purchase value?
• Whether all the expenses such as Securities Transaction Tax, Stamp Duty, Brokerage, Exchange Transaction Charges, GST, SEBI Turnover Fees etc. shall be debited in the Trading & Profit & Loss Account?
Please guide me
How to Prepare Trading & Profit & Loss Account for F &O Trading in Case of Tax Audit
Futures and options (Non-speculative transactions)
In Normal scenario, turnover for Futures & Options is determined as follows –
o The total of favorable and unfavorable differences shall be taken as turnover
o Premium received on sale of options is also to be included in turnover
o In respect of any reverse trades entered, the difference thereon should also form part of the turnover.
For understanding the above Turnover is taken as “Calculated Turnover”.
My question is when an assessee opts for Tax Audit in F & O Trading; Turnover to be credited in Trading & Profit & Loss Account shall be
1. Normal Turnover or
2. Calculated Turnover.
If we have to go for Option (1), Normal Turnover shall be credited in the Trading & Profit & Loss Account and normal Purchase value along with all the expenses such as Securities Transaction Tax, Stamp Duty, Brokerage, Exchange Transaction Charges, GST, SEBI Turnover Fees etc. shall be debited in the Trading & Profit & Loss Account , the balance being the Net profit/Loss.
But if we have to go for Option (2), Calculated Turnover shall be credited in the Trading & Profit & Loss Account.
But how to account for the difference in Turnover (Normal Turnover Vs Calculated Turnover) .
• Suppose Normal Turnover (Sell value) in case of F&O Trading is Rs. 250.00 Lacs and Calculated Turnover comes at Rs. 50.00 Lacs
• Now, since we have to credit Rs. 50.00 Lacs in the Trading & P & L A/c (Calculated Turnover), How to adjust the difference of Rs. 200 Lacs (250 – 50)?
• Shall the difference be adjusted with the normal purchase value?
• Whether all the expenses such as Securities Transaction Tax, Stamp Duty, Brokerage, Exchange Transaction Charges, GST, SEBI Turnover Fees etc. shall be debited in the Trading & Profit & Loss Account?
23 December 2021
1. The way you derived calculated turnover, derive calculated purchase value by subtracting gross profit actually arrived from it. So the gross profit remains same.
2. Yes.
2. Yes.
Message likes :
1 times
06 January 2022
Thanks a lot for the reply Sir...
Message likes :
1 times
07 January 2022
Most Welcome ...
Message likes :
1 times
08 January 2022
Sir, Suppose Mr. X is a Doctor by Profession earning salary Income and Professional Receipts U/s 194 J during the F.Y. 2020-21.
The professional Receipts are shown under Sec 44 ADA till FY 2019-20. (Presumptive Taxation)
During the F.Y. 2020-21, Mr. X has also done equity intraday trading and F&O Trading. Turnover from Intraday Trading Rs. 5,000/- and Turnover from F & O Trading Rs. 55 Lakhs (calculated as per formula applicable on Equity intraday and F & O Trading).
Actual Profit from Equity Intraday trading Rs. 100/- and F & O Trading Rs. 27,000/-.
Mr. X shall not opt for presumptive taxation in respect of F & O Trading.
Mr. X shall show Professional Receipts U/s 194 J under Presumptive Taxation (Shall opt Section 44 ADA).
Mr. X shall show actual Profit from Equity Intraday Trading as Speculative Income.
Turnover from F & O Trading exceeds 25 Lakhs so maintenance of books of accounts mandatory, if Mr. X does not opt for presumptive taxation U/s 44AD in respect of F& O Trading.
Sir, My question is:
Will tax audit be required if Mr. X shows actual profit of Rs. 27,000/- as income from F & O Trading and files Balance Sheet and Profit & Loss Account ?
a. Profit is less than 6% of Turnover
b. F.Y. 2020-21 is the first year of Trading in F & O.
c. Mr. X has never shown any income U/s 44 AD. Only Professional Receipts U/s 194 J are shown U/s 44 ADA.
The professional Receipts are shown under Sec 44 ADA till FY 2019-20. (Presumptive Taxation)
During the F.Y. 2020-21, Mr. X has also done equity intraday trading and F&O Trading. Turnover from Intraday Trading Rs. 5,000/- and Turnover from F & O Trading Rs. 55 Lakhs (calculated as per formula applicable on Equity intraday and F & O Trading).
Actual Profit from Equity Intraday trading Rs. 100/- and F & O Trading Rs. 27,000/-.
Mr. X shall not opt for presumptive taxation in respect of F & O Trading.
Mr. X shall show Professional Receipts U/s 194 J under Presumptive Taxation (Shall opt Section 44 ADA).
Mr. X shall show actual Profit from Equity Intraday Trading as Speculative Income.
Turnover from F & O Trading exceeds 25 Lakhs so maintenance of books of accounts mandatory, if Mr. X does not opt for presumptive taxation U/s 44AD in respect of F& O Trading.
Sir, My question is:
Will tax audit be required if Mr. X shows actual profit of Rs. 27,000/- as income from F & O Trading and files Balance Sheet and Profit & Loss Account ?
a. Profit is less than 6% of Turnover
b. F.Y. 2020-21 is the first year of Trading in F & O.
c. Mr. X has never shown any income U/s 44 AD. Only Professional Receipts U/s 194 J are shown U/s 44 ADA.
08 January 2022
NO. Tax audit for F&O trading not compulsory.
Message likes :
1 times
08 January 2022
Thanks Sir.
Sir, as per Law no tax audit is required even if Net profit is lower than 6%/8%, if one is not opting for presumptive taxation.
But shall the IT Department allow Income below 6% of Turnover without tax audit.
There are some cases I came to know, where the IT Department has asked the assessee to get the Tax Audit done.
Sir, as per Law no tax audit is required even if Net profit is lower than 6%/8%, if one is not opting for presumptive taxation.
But shall the IT Department allow Income below 6% of Turnover without tax audit.
There are some cases I came to know, where the IT Department has asked the assessee to get the Tax Audit done.
08 January 2022
Few years back it was mandatory to declare 8% profit for business activity, otherwise audit was mandatory. But after the amendment in the act, the rules have changed. Now audit is mandatory only if sec. 44AD(4) gets attracted; or any other clause as per sec 44AB is applicable.
So, even if ITD may raise query, but it can be replied with reference to the IT act, as no clause is applicable when the presumptive assessment was never opted out in any preceding year.
For more details refer::
https://www.caclubindia.com/experts/details.asp?mod_id=2853079
So, even if ITD may raise query, but it can be replied with reference to the IT act, as no clause is applicable when the presumptive assessment was never opted out in any preceding year.
For more details refer::
https://www.caclubindia.com/experts/details.asp?mod_id=2853079
Message likes :
1 times
08 January 2022
Sir, although the assessee has never opted for Sec 44AD in any preceding previous years.
But will it make any difference when the assessee has opted Professional receipts U/s 44 ADA in the FY 2020-21 and preceding previous years.
But will it make any difference when the assessee has opted Professional receipts U/s 44 ADA in the FY 2020-21 and preceding previous years.
08 January 2022
For sec. 44ADA it is mandatory to declare minimum 50% profit margin, otherwise tax audit is mandatory. But it cannot stretch audit liability for sec. 44AD. Both sections are independent.
08 January 2022
Thanks a lot Sir for the clarification.
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- Reporting Income under Section 44ADA
- Off Market debit and credit transaction
- Itr 1 processing
- Showing Gift from relative in ITR for this year
- Form 10E u/s 89(1). Need clarification because experts opinions differ !!!!
- ITR 1: Details for showing Exempt Income
- Share accounting-->fifo - capital gain - period as per fifo?
- ITR 2 Short Term gain & Long term gain
- ITR returnFY25-26
- Short Term Capital gain on shares bought and sold after 2018 onwards
- TDS 194R on GST effected
- Gst invoice numbering and delivery challan numbering
- Sales amount in Gstr1
- E Commerce GSTR1 & 3B how to file
- GST Cancellation without jurisdiction
- Legal Opinion on Registrar's Refusal to Investigate a Society for Non-Renewal and Non-Compliance
- GST Refund_RFD-01
- Form10BD was uploaded successfully without any Error but after 24 hours, Form10BE are not available
- Annexure B utility for GST Refund
- Tax amount diff in Gstr1 and 3B in tax compare reports
Trending Online Classes
-
DT & Audit (Exam Oriented Fastrack Batch) - For May 26 Exams and onwards Full English
CA Bhanwar Borana & CA Shubham Keswani
Subscribe to Pro
Join an elite circle of professionals
CAclubindia
