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tax audit

AMIT ADHIA (ca) (110 Points)

01 July 2009

I hav loss in Futore option of Rs. 60,00,000 & profit is Rs. 50,00,000. so the net result would b Rs 10,00,000. so that m i covered under tax audit u/s 44AB. plz replu us urgently. please provide me with refrence to defination to turnover in refrence with tax audit.

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12 Replies

praveen (Chartered Accountant) (6971 Points)
Replied 01 July 2009

44AB is based on turnover and not merely profits.

In my opinion if the turnover from trade of futures and options is more than Rs.40 L then you are covered under compulsary audit.

Sourabh Sharma (CS CA (Final) M.com NCFM Derivative Capital Market Mutual Funds) (771 Points)
Replied 01 July 2009

YES PRAVEEN IS CORRECT

CA Vinay Saraf (CA) (148 Points)
Replied 02 July 2009

Originally posted by :Sourabh Sharma #Wicked Sunny#
"	YES PRAVEEN IS CORRECT	"

ya i also think so but if there is any case law or any other provisions which clearly substantiate the fact so plz give that

(Guest)

I m Agree With Vinay And Sorabh

Abhishek Jain (c.a. final student) (54 Points)
Replied 02 July 2009

hi amit ..... yaar According to Section 44AB the income will be charged not profit......

so in your case u ll be liable under section 44 AB

Abhishek Jain (c.a. final student) (54 Points)
Replied 02 July 2009

hi amit ..... yaar According to Section 44AB the income will be charged not profit......

so in your case u ll be liable under section 44 AB

nd praveen bhai is also correct....

Regards

Abhishek Jain.......

CA Devanshi Gandhi (Ajani) (FCA DISA Mcom CIFRS & LLB) (9058 Points)
Replied 02 July 2009

u will be liable for tax audit as in future trading loss and profit both should be added and than basic limt for tax audit should be seen and in ur case its above 4000000.....

CA.Shaleen Srivastava (CA , CWA*, Bcom(H)) (1999 Points)
Replied 02 July 2009

u will liable under tax audit (44 AB)

(Guest)

Hi Amit,

View expressed by Praveen in correct go by that....!!

praveen (Chartered Accountant) (6971 Points)
Replied 02 July 2009

Originally posted by :Shaleen Srivastava
"	u will liable under tax audit (44 AB)	"

Can you tell me how please

Sourabh Sharma (CS CA (Final) M.com NCFM Derivative Capital Market Mutual Funds) (771 Points)
Replied 02 July 2009

For Tax purpose the Income tax act distinguishes between Delivery, Intraday trading in cash segment and FnO segments.

Consequently the tax treatment for profit/loss in all three are different.

CASH DELIVERY
Delivery is deemed as investment in an asset. Therefore Capital gains rules apply.
On short term investment i.e. shares bought in cash segment and sold before completion of 1 year from date of purchasing, you have to pay 15% of profits as STCG Tax (10% for AY 2008-09/FY 2007-08)
On long term investments i.e. shares sold after 1 year of holding the long term tax applies which currently is NIL.
Any loss is allowed to be carry forward and set off for 8 years

CASH INTRADAY
Intraday trading in Cash segment is deemed as speculation, same as lottery or betting on horse racing.
The tax rate applicable on profits from speculation income is flat 30%.
Any loss is allowed to be carry forward for 4 years, to be set off against future speculation profits.

DERIVATIVES/F&O
Dealing in FnO is treated as Business. Thus normal business taxation rules apply as they would to any other business. The rate of Tax is as per Slab applicable in the respective year. In current year, income upto 150,000 is exempt. Above it the Slab rates come into effect.
Any loss again is allowed to carry forward for 8 years and set off against other heads of income or future income.

The exempt income slab Rs. 150,000 is available to every individual. i.e. If your total income does not exceed rs. 1.5 L you are not liable to any tax, irrespective of the nature of income being Capital gain or Speculation income or Business Income. Above that the tax rates come into effect.

IMP: TAX AUDIT IS ONLY REQD FOR BUSINESS INCOME I.E FOR INCOME FROM DERIVATIVES/FUTURES AND OPTIONS. Not from Income from Capital Assets or Speculation Income. So you may have a income of Rs. 2 Crore from Delivery/Intraday but no need for Tax Audit.
Another point to note is the method by which the limit of 40 Lakh is calculated for audit purpose in case of Derivatives. As the Future lots are upwards of Rs. 2 Lakhs its quite easy to cross the 40 Lakh figure by way of turnover, which is incorrect in principle.
So the total difference between Buy and Sell price of FnO is taken to calculate the 40 Lakh limit, i.e. the profit + loss + premium on options recd + premiums paid.
It may well be that you have net loss from derivatives and still have to go for tax audit. For e.g. Profit 20 L + Loss 25 Lakh = Turnover 45 Lakh Tax Audit Reqd. Net Loss = Rs. -500,000.