Tax audit under u/s sec 44ab needed if stcg from share trading is just 2.77% of turnover value?

Dipika Shah (Partner) (188 Points)
Replied 18 July 2018

Since your turnover for intra day trading is only 252710 no tax audit is applicable to you u/s. 44AB.

You are mixing up two sections after reading the internet source. Please understand that tax audit is applicable u/s. 44AB if the turnover is above 1 crore. In another section i.e., 44AD tax audit u/s. 44AB is applicable when the turnover is above 2 crore or if the turnover is below 2 crore but the profit percentage to gross turnover is below 8%.

Hence, the aspect of profit should be above 8% is applicable when you are showing business income u/s. 44AD which has 2 crore limit.

In your case when it do not crosses either one crore or two crore you need not look into audit sections at all. In any case tax audit is not applicable for turnover of Rs.2 lakhs.

Vaish T (85 Points)
Replied 19 July 2018

Thank you Dipikaji. I went thru your response multiple times made my understanding below;
(a) If your annual gross turnover/receipts from business exceeds Rs. 1 Crore, you MUST get Tax audit done u/s 44 AB.
(b) However you can still avoid Tax Audit u/s 44AD in case your annual gross turnover/receipt is below 2 Crore (i.e. Between 1 crore and 2 crore) and your Net Income is 8% & above (of your gross turnover/receipt).
(c) If your gross turnover/receipt is between 1 crore & 2 crore and Net Income is below 8% of annual gross turnover/receipt, then you MUST get Tax audit done u/s 44 AB.

So my questions to you now are;
(1). Is my understanding stated in above 3 points is correct?
(2). I had mentioned my turnover is Rs. 2,52,710, which includes both Purchase and Sales value, which is wrong. The turnover/receipt value is the sell value of shares i.e. 1,29,860. Is my fresh understanding is correct?
(3). On the last line you mentioned that "In any case tax audit is not applicable for turnover of Rs.2 lakhs". Is this rule referenced in u/s 44AB?
(4). Apart from the short term gains I had mentioned, I do have some long term gain earned by selling old (+3 years) shares and mutual funds. Do I need to include them while calculating annual gross turnover/receipt too? My understanding is since they are under LTCG bucket and hence entirely tax free till last FY-17/18, I need not worry about them, except mentioning them as Exempt Income.

Please correct me if I am wrong at any of the above points and please respond me accordingly. That will help me make my understanding clear on this issue. Once again thank you for your prompt response. I appreciate your time.

Dipika Shah (Partner) (188 Points)
Replied 19 July 2018

Section 44AD is presumptive tax wherein if a person who do not maintains any books of accounts then he can offer business income at 8% of gross receipts or actual profit whichever is higher.

There is no option to show u/s. 44AB or 44AD. Both sections are independent of each other. There is provision u/s. 44AD that in case if the profit is below 8% and you have declared income under presumptive tax scheme then as per law tax audit has to be done u/s. 44AB.

You need to understand the nature of income. If the income is from sell of shares by delivery which is kept as investment then profit from the same is taxable as STCG / LTCG as the case be. If the same is subject to STT then LTCG is exempt.

Where the income is out of intra day dealings which is speculative business income/loss which is in nature of business income. Depending on your nature of investment and sale of shares by delivery or without delivery you have to offer it as Capital gains or business income as the case be.

If the nature of income happens to be business income and if you have maintained books of accounts and turnover is beyond one crore then provisions of 44AB is applicable. If you do not have books of accounts then you have option to declare busness income u/s. 44AD i.e., 8% of gross receipts.

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Vaish T (85 Points)
Replied 19 July 2018

Thank you Dipikaji for clarifying my doubts. Now I have clearly understood that section 44AB and section 44AD are applicable only in case of Business Income (for which I guess one need use ITR-4) above 1 crore. In my case, there were few trades done on Intraday basis (only 6 trades with total income of Rs. -318 (loss)). Rest all are delivery based and I can safely say the income from my share trading is Capital Gain (STCG). So I don't have to worry about Tax Audit at all. Please correct me if my understanding is incorrect. Thank you very much again for excellent guidance.

Dipika Shah (Partner) (188 Points)
Replied 20 July 2018

The loss of 318 you can show in business head as loss from speculative business.

Rest all delivery based you can offer as STCG or LTCG as the case be. Tax audit is not applicable to you.

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Vaish T (85 Points)
Replied 20 July 2018

In that case do I need to file ITR-3 or ITR-4? Because I don't see any section on ITR-2 to show loss from speculative business (which I was going to report capital gains). Frankly I am not really bothered about that tiny loss to carry forward, unless IT dept insists on its reporting too. This is my last question on this topic. Thank You.