Tax audit

Others 3061 views 26 replies

I am doing online trading of shares. I carry out intraday trades as well as delivery trades. In respect of delivery trading shares are held for a few days/ or a month or two. I also have pension income of about Rs.1.25 lacs.

The trading figures are as under:

Delivery purchases Rs.17.17 lacs Delivery sales Rs.17.72 lacs

Intra day purchases Rs. 25.20 lacs Intraday sales Rs.25.76 lacs

Can you please clarify whether I  have to subject my accounts to tax audit

 

 

 

 

I would like to whether O have to submit tax audit report fy 2008-2009

Replies (26)

Mr. Narayanan, as your income is going to be more than Rs. 40 Lakh during the relevant previous year (i.e. including Intraday Trading and Delivery) and Pension, you are required to get your accounts audited for the prescribed year and submit Tax audit report u/s 44AB for the same.

 Take figures for fyr 08-09. Run the sale statement from 1-4-08 to 31-3-2009 from the software your broker has provided. If those figures (Total sales of 17.72 lac+25.76lac) relates to fyr 08-09, then you should keep books of accounts and subject to tax audit. To determine applicablity of tax audit, you should give figures for a financial year.

 I also forgot this. From this year onwards (from 01-04-2009), you should start deduct tax at source because from fyr 08-09 you have exceeded 40 lacs. else you will be in problem for not deducting tax viz. disallowance of expenses, interest, penalty blah blah . Also file the first quarter tds returns (1.4.09-30.6.09) soon to avoid interest. 

Sir, you are not required to go for tax audit,  Intra day Trade is Treated as speculation Businee income and Delivery trade is treated as business income or short term capital Gain. Intra day trade recorded as net basis means profit or loss daily.  

Sir,

I think Intra day doesnot necessarily mean speculation business. To qualify as speculation business, there should be sale without delivery. Even though there is no delivery in intra day, it will not be speculation business because there is deemed to be delivery in that case because the order is executed. But if there is short selling in intra day, then that will be considered as speculative business. I m sure about this because, i trade in shares. at end of every fyr, the broker gives a statement which says how many delivery transactions and how many speculative transactions i have done. In that case, only short sale came to picture. But not the delivery based transactions intra day. As long as u go long in intra day trading, then it is not a speculative business. 

Even if there is speculative business, sale figure of both speculative & non speculative business should be considered for tax audit eligiblilty. because the limit should be considered on per person basis and not per business basis.

Sir - I am only a student. I could be wrong. This is what i learnt in articleship and in classes. Please confirm me if you have any solid reasons to suggest otherwise..

Thanks.

 who  is right ??there are divergent views even on simple things. I think we are good in complicating the matters and then try to simplify it . I dont know whether any moderator is there to give aconcluding message . What should Nagarajan sir do ???

 Lol.. Even if there is moderator, there are chances that he might hav a different view. That is Income tax. You should have one CA & trust him. There is more than one way of dealing with tax problems. So i suggest Mr Nagarajan to consult a CA and do what ever he says to do. 

Thanks for a very lively discussion on the subject. I saw some posts elsewhere about excluding intraday sales to arrive at the limit of R.40 lacs and wanted to know whether I can avoid tax audit. for he same reason. As suggested, I should comsult my CA and proceed.

Thanks for the lvely exchange of views. As suggested ,I will consult my CA over this,

First of All, I want to suggest Kingsley that please dont reply to any query in case u r not certain on any issue. Even if you think that have information on certain matter please substantiate it with any case law, section or circular. If you cant help someone then atleast don,t create confusion. and please don't take it seriously its just a humble request to you because CACLUBINDIA should be a plateform to help eachother not creating confusion.

For understanding purpose I have made my reply in a layman language, Use of statute language is minimal. I hope it will clear your confusion, in case of any doubt do reply back.
There is no definition is given to the term ‘turnover’ for the purpose of tax audit under section 44AD. For that purpose Institute of Chartered Accountants of India has issued guidelines which are being followed and also being accepted by the Income tax Deptt. For the purpose of Share transactions the guidelines are being reproduced as follows (Extracts only relating to your case)
Section 43(5) Speculative Transation :- "Speculative transaction" means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips.
Tax audit applies to every person whose total sales, turnover or gross receipts in business exceeds Rs 40 lakh. Intraday trading is considered as speculative business. . As per the guidelines issued by the Insititute of Institute of Chartered Accountants of India(ICAI), a speculative contract is settled by paying out the difference, which may be positive or negative .Thus, the aggregate of both positive and negative differences, i.e., profit or loss from transactions is considered as the turnover for determining the liability to audit vide Section 44AB of the Income Tax Act, 1991.
As you are engaged in intra-day trading, the aggregate of profit and loss and not purchase and sale will be considered for determining the liability to audit.
Delivery based transactions:Where the transaction for the purchase of sale of any commodity including stocks and share is delivery based whether intended or by default, the value of the sales is to be considered as turnover.
 
The above guidelines in your case would be applicable as follows
1)    You have to calculate profit or loss for each transation relating to Intra day trading
2)    Sum up all the transaction Where you earn profit
3)    Sum up all the transaction where you earn loss
4)    Aggregate (1) and (2), Which will be considered as turnover relating to Intra day trading for the purpose of tax audit.
5)    Now sum up Sales of Rs.17.72 lacs (i.e. Delivery Transaction) with (4) above.
 
Now if amount calculated under (5) above is more than Rs. 40 lacs than you are liable to Tax Audit Otherwise not. I guess after calulating as above you wont be liable to tax audit.
E.g.
You have made 200 intra day transaction during the previous year & you made profitof Rs. 5,00,000 in 100 transactions and loss of Rs. 5,00,000 in other 100 transations, then turnover to be included for tax audit purpose is 10,00,000.
Thanks & Regards
CA. Hitesh Kumar

 

Speculative Transcation are not covered for Tax audit purpose hance turnover in case of Intraday sales are excluded from the meaning of Turnover for the purpose for Tax audit...........in a case if you are dealing in shares and are held as stock in trade and then the turnover means sales of shares otherthan intraday if excedding Rs 40 L than you are Required to get audited your accounts from A qualified Chartered accountants in in practice............... here as you written your deleveri based sales is of Rs.17.72 Lacs hance you are not lible for Tax audit....as per...Sec 44 AB.

 

 

Mr. Naresh Biyani can you tell me from which source you have got this information about Speculative transaction being not covered for Tax audit purpose Please don,t confuse others just for the sake of making points by replying. My reply is based on Guidelines issued by ICAI on Tax audit, and for your referral you can also read those guidelines, and Please please don,t reply without substantiating your answer.

 Dear hitesh ji,

Please forgive me if i am wrong.Doesnt delivery of share takes place when we put buy order? So when we do intra day buy, doesnt delivery take place at time of giving buy order?

  Also during fyr 08-09, i have done 2 times intra day trading. And once i went for short selling. There was a statement that summarises all the nature of transactions and computation of Security Transaction TAx therefrom. In that statement, it was mentioned that i have entered only 1 speculative transaction as per INCOME TAX ACT definition. More over, i have done tax audit of a share trader whose shares are held as stock in trade. we never considered intra day as speculative transaction. 

So the solution will be got when you answer when does delivery takes place in share trading. I have solid reason to believe that it happens once you place a buy order. We can equate it to buying a motor car, recieving it without registration and then selling it. Eventhough, we havent registered motorcar in our name, we had taken delivery when we buy. So we cant call this sale without registration as speculative transaction. If you have other views please let me know. 


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