One professional opting 44ada since 1-2 years have f&o loss of 10 lacs this previous year with total income exceeding basic exempt limit. So 1st time tax audit is applocable to him but under which section ?
I am having no idea where to report f&o loss and other pl items and what to fill in form 3cd.
Please Any expert views to resolve my issue.
Section 44ADA provides a presumptive taxation scheme for professionals, allowing them to declare 50% of gross receipts as income.
Normally, no tax audit is required if the professional opts for 44ADA, unless their total income exceeds the basic exemption limit and books of accounts are maintained.
However, if the professional has income from other sources like F&O trading with loss and total income exceeds the basic exemption limit, then tax audit may become applicable under Section 44AB.
Section 44AB mandates tax audit for professionals/businesses if turnover/income crosses certain thresholds.
Since the professional has income exceeding the basic exemption limit and also has F&O loss, tax audit under Section 44AB is applicable.
The F&O loss is treated as Capital Loss (short-term or long-term depending on holding period, generally short-term for F&O).
It should be shown separately under Capital Gains section in ITR.
In Form 3CD (Tax Audit Report), details about income from speculative business or non-speculative business (depending on F&O nature) should be disclosed.
Professional income declared under 44ADA is presumptive and will be reported as such.
Details of capital gains or losses are mentioned under relevant clauses in Form 3CD like:
Clause 14 (Income from business or profession)
Clause 30 (Other particulars relevant to income computation)
Mention nature of business, and separately report loss from F&O.
| Aspect | Explanation |
|---|---|
| Presumptive income under 44ADA | 50% of gross receipts declared as income |
| F&O Loss | Report as capital loss (short-term capital loss) |
| Tax Audit Applicability | Tax audit mandatory under Section 44AB |
| Reporting in Form 3CD | Disclose professional income under 44ADA, F&O loss under capital gains/loss |
Maintain proper books for the professional activity.
Get tax audit done under Section 44AB.
Ensure F&O transactions and losses are properly documented.
Consult a CA or tax auditor to fill Form 3CD accurately with relevant details.
For FY 2025-26 (AY 2026-27), still under the 1961 Act:
F&O is not a capital loss. Derivative trading on a recognised exchange is non-speculative business income (proviso to Section 43(5)). File ITR-3 and report it separately from your 44ADA profession.
Audit, activity by activity:
- Profession: Section 44ADA(4) triggers audit under 44AB(d) only if you declare profit below 50% of gross receipts AND your total income exceeds the basic exemption limit.
- F&O: audit under 44AB(a) applies only if turnover crosses ₹1 crore (₹10 crore if cash receipts and payments are each within 5%). Turnover is the sum of absolute profits and losses per trade. As per ICAI guidance, option premium is not added separately. A loss alone does not trigger an audit.
Set-off: after offering 50% on the profession, set off the F&O loss against your other income (except salary) in the same year. Any balance carries forward for 8 years, against business or professional income only, provided the ITR is filed by the Section 139(1) due date.
If neither trigger applies (and your professional receipts are within the 44ADA limit), no Form 3CD is needed. If an audit was required and the due date has passed, still file it late. The Section 271B penalty is 0.5% of turnover or receipts, capped at ₹1,50,000, and Section 273B allows a waiver for reasonable cause. From FY 2026-27, the new Act replaces this with a fixed fee.
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