LIVE GST Certification Course by CA Arun Chhajer begins 21st April. Register Now!!

Section 44ad

Hiten (CA) (275 Points)

05 December 2015

whether a salaried employee, having loss from trading in derivatives (which fall under income from pgbp head) can file ROI (ITR-4S)under section 44AD (presumptive taxation)

Reply
Follow
Share

9 Replies

J. K. Ratan (Compliance Advisor) (794 Points)
Replied 05 December 2015

Dear Sir

As per Section 44AD of income tax following persons are excluded from the applicability of the presumptive provisions of section 44AD...

1. Profession as refered in section 44AA :- Legal, Medical, Engineering, Architectural,Accountancy,Technical, Interior decoration,Authorized Representive,Film Artist,CS & Profession of Information Technology.

2. Earning in nature of Commission & Brokerage

3. Any Agency Business.

And as per section 44AD a person carrying a business of derivatives are not coverd in exclusion catogary of section 44AD. So that eligible to file ITR 4S.

Note :- A person can't be set-off business losses against salary Income as per section 71 of income tax act 1961.

Stranger (.) (5526 Points)
Replied 06 December 2015

Originally posted by : Jay Kumar Ratan
	Dear Sir As per Section 44AD of income tax following persons are excluded from the applicability of the presumptive provisions of section 44AD... 1. Profession as refered in section 44AA :- Legal, Medical, Engineering, Architectural,Accountancy,Technical, Interior decoration,Authorized Representive,Film Artist,CS & Profession of Information Technology. 2. Earning in nature of Commission & Brokerage 3. Any Agency Business. And as per section 44AD a person carrying a business of derivatives are not coverd in exclusion catogary of section 44AD. So that eligible to file ITR 4S. Note :- A person can't be set-off business losses against salary Income as per section 71 of income tax act 1961.

Fully agreed....

Nikhil Kaushik (Fellow CA) (84928 Points)
Replied 06 December 2015

I am sorry. How did you rule out 44AD for derivatives. It is covered under eligible business and if the assessee is ready to offer 8% profit on the turnover, he can file return under 44AD. However, if the turnover exceeds Rs 1 cr or where turnover is less than 1 cr, the profit being offered is less than 8%, assessee needs to file ITR-4 with books of accounts and audit.

J. K. Ratan (Compliance Advisor) (794 Points)
Replied 06 December 2015

Originally posted by : Nikhil
	I am sorry. Ho did you rule out 44AD for derivatives. It is covered under eligible business and if the assessee is ready to offer 8% profit on the turnover, he can file return under 44AD. However, if the turnover exceeds Rs 1 cr or where turnover is less than 1 cr, the profit being offered is less than 8%, assessee needs to file ITR-4 with books of accounts and audit.

Dear Expert...

I'm also agree with you.

But my answer was based only on requirment of eligibility of derivative business for Section 44AD or not.

Since this derivative busines don't fall in exclution list of business or profession under section 44AD is eligible to file Income tax return under section 44AD.

Alongwith this person will have to be complied with additional requirements as you mentioned above

Thank You.

Stranger (.) (5526 Points)
Replied 06 December 2015

@ Nikhil: Sir, I am fully agreed with your detailed views too..but I think Mr. Jay Kumar Ratan didn't rule out 44AD for derivatives but presented the provisions indirectly. So am quoting his relavant portion of reply here again... "And as per section 44AD a person carrying a business of derivatives are not coverd in exclusion category of section 44AD. So that eligible to file ITR 4S"... Your's verdict Sir??

ashish (article) (151 Points)
Replied 06 December 2015

Nikhil jii... One thing I need to clarify that as you written that because profit is less than 8% therefore tax audit will be required... But as per my knowledge tax audit is applicable only in this case if total income exceeds maximum limit not chargeable to tax and in instant case hiten jii has specifically given that there is a loss from derivative business.......

CA Vap Patel (Practice) (1205 Points)
Replied 07 December 2015

Hiten,

Do consider turnover criteria first. As in case of derivative business your turnover limit is 1 Corer of “positive or negative difference amount arise on settlement of contract“

And yes, I agree with Ashish, Section 44AD clearly states that” where the profit and gain from the business are deemed to be the profits and gain of the assesse u/s 44AD and the assesse has claimed his income lower than the income prescribed u/s 44AD and during such previous year his income exceeds the basic exemption limit, he shall maintain books of account as per sec 44AA and get the same audited u/s 44AB.

Hence auditing and maintenance of book don’t required.

CA YOGESH HARJAI (Tax Advisor) (127 Points)
Replied 07 December 2015

Dear Professional Colleagues,

As per the guidance note issued by ICAI on Tax Audit, in case of trading in derivatives, each transaction resulting into whether a positive or negative difference is an independent transaction.

Accordingly, the aggregate of both positive and negative differences is to be considered as the turnover of such transactions.

For eg: If you have earned a profit of say Rs. 100 in one transaction and incurred a loss of say Rs. 50 in another, your total turnover in this case will be Rs. 150 and net profit will be Rs. 50 i.e. difference of two.

You can now compute your turnover accordingly and as you have incurred overall loss which is obviously less than pre condition of sec 44AD of min profit of 8% of turnover you will be required to get your accounts audited.

Note: Refer pg 25 of guidance note attached to understand how to compute turnover in this case. Also note that Business loss cannot be setoff against salary income.

Attached File : 69137 20151207144245 34728gn taxaudit dtcicai.pdf downloaded: 120 times

RamRatan Chejara (Article assistant) (27 Points)
Replied 09 December 2015

Notwithstanding anything to the contrary contained in sections 28 to 43C , in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shal be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession".