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44ad & 44ab - share trading business

31 July 2017

My Client has Share Trading Business. & Also Trades in F&O.

As per Provisions of 44AB, His Turnover doesn't exceeds 1 Crore so he is not liable for Tax Audit.

But, I want to know whether he has to go for TAX AUDIT U/S 44AD.

Because, 8% Profit (8% of the Turnover) is hardly Possible. Even Though My Client has Other Incomes like Interest. Net Profit from Share Trading is less than 8% but if Other Incomes are included in Net Profit then 8% Target is achieved. And 44AD doenst counts Other Income for Calculating the 8% Profit, I think.

So is he liable for Audit U/s 44AD?

If Yes, then I think Majority of Share Traders will have to go for Audit even though there Turnover may be as low as 10-20 Lakhs.

Kindly Reply ASAP.

Thank You.

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8 Replies

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (177896 Points)
Replied 31 July 2017

"If Yes, then I think Majority of Share Traders will have to go for Audit even though there Turnover may be as low as 10-20 Lakhs."........... Rightly predicted.......

Mainly two conditions to occur simultaneously..........

a. Profit margin less than 6%.............. b. Gross total income (after adjustment of the loss from other heads of income except salary) to exceed basic exemption limit........

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CA CHETAN GUPTA (CA) (588 Points)
Replied 31 July 2017

Thanks Sir.

Yes Sir, Profit is less than 8%. (Why U wrote 6% ??)

Share Traing Business Net Profit is less than 8%. EXCLUDING the OTHER INCOMES which are included in P&L A/c. (Not Income from Ither Sources).

[Note: Kindly Guide whether we have to Exclude such other Income while Calculating the 8% or to include such income in Turnover on which we calculate 8%]

Also, Gross Total Income is above Basic Exemption Limit. Excluding the Speculation Losses and Such Other Losses which are not allowed to Setoff.

Thanks.

CA CHETAN GUPTA (CA) (588 Points)
Replied 31 July 2017

CA CHETAN GUPTA (CA) (588 Points)
Replied 07 August 2017

Hello Sir,

One more thing I wud like to ask.

From Share Trading Business - Gross Profit / loss is Coming. The Individual has Other Incomes too.

Whether, This Gross P/L will be taken in Profit & Loss A/c. and The Net Profit be Taxed as per Normal Provisions. i.e Basic Exemption will be available.

Whether the Profits / Loss of Share Trading will be Subject to SHORT TERM & LONG TERM Capital Gains Tax. ??

I have read this treatment here in this article.

https://help.cleartax.in/hc/en-us/articles/115008078987-Income-from-shares

I hv filled up the ITR 3 taking share purchase and sales and Opening and Closing Stock in the P&L A/c in the Return Form - i.e. Share Sales in "Sale of Goods" etc.

If this Treatment is wrong Suggest the Correct Treatment.

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (177896 Points)
Replied 07 August 2017

For transactions through banking mode the minimum amount of profit is fixed at 6%, while that for cash mode is 8%.

The income from other sources is not included under PGBP, hence the presumptive assessment is only for business income.

When the gross income after set of of non-speculative loss with IFOS exceeds basic exemption limit...... tax audit is mandatory.

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Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (177896 Points)
Replied 07 August 2017

" This Gross P/L will be taken in Profit & Loss A/c. and The Net Profit be Taxed as per Normal Provisions. i.e Basic Exemption will be available?" YES.

"Whether the Profits / Loss of Share Trading will be Subject to SHORT TERM & LONG TERM Capital Gains Tax?" No. Check the word 'Trading' is not 'Investment' !!!

Income from shares investment is treated under Capital Gains.......... but not intraday & F&O Tradings.

For calculations on shares trading refer: chapter/turnover-balance-sheet-and-pl

krishna gupta (article) (29 Points)
Replied 23 May 2018

I am confused here. why have u said all traders will be required to get audit if they want to show less than 8%. I dont think 44AD is a compulsary section.