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Audit applicability on F&O

Pooja Makwana (CA Final Student) (38 Points)

28 March 2022

I have a client who has profit in speculation business & loss in Future transaction. His turnover from both speculation & f&o is less than 1 crore. So my queries are:

1. Is 44AD i.e. 6% min profit criteria applicable on F&O?

2. Is audit applicable if there is loss in F&O even though turnover is less then Thesehold limit?

3. If the business is not speculation or F&O just normal business & I don't prefer to show it in 44AD & turnover is also less than Thesehold limt & I show less then 8% profit. In this case is audit applicable?

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5 Replies

Eswar Reddy S (CFO- at NHTF) (58263 Points)
Replied 28 March 2022

F & O is considered as normal business.

1. You may opt for 6% under 44AD.
2. Audit is applicable even if it is less than threshold limit but it may not consider for ceiling on number of audits

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Sumegh Kelkar (38 Points)
Replied 28 March 2022

F&O is normal business and specifically excluded from the definition of speculative business.
If this is the first time your filling the return for F&O, you may file it throught ITR 3 by giving the details of balance sheets and P&l. If you have already opted for 44ad in previous years then you have get it audited for the current year and automatically you will not be able to otp in again. for 5 years and also if total income exceeds basic exemption you have to get books audited. so consider the tax savings on the loss and audit fee required to be paid and you may opt to show 6% profit (though actually loss) and move on and avail the benefit of 44ad for coming years.

Eswar Reddy S (CFO- at NHTF) (58263 Points)
Replied 28 March 2022

3. Audit is applicable

Pooja Makwana (CA Final Student) (38 Points)
Replied 28 March 2022

This is first time that the assessee has F&O. So what I understand is that if I give details of balance sheet & P&L & show loss then there will be no implications of tax audit as turnover is less than Thesehold limit. Right?