Hi Folks,
I trade in F&O. 98-99% in options.
For taxation purpose I am calculating Turnover as advised by Zerodha Versity, I consider them competent enough to follow their advise.
My Turnover for FY 2015-16 (AY 2016-17) is slightly more than 1 crore, i.e. turnover is 1.2 crore.
Profit is less than 8% of 1.2 Crore (WRT Sec 44AD)
My main questions are as follows:
1. In this condition is a Tax Audit absolutely compulsory?
2. If yes, what could be consequences for non-compliance ? (I mean i am a too small fish for IT guys, people have turnover of 100s & 1000s of crore, so would IT guys come after such a small fish?)
3. Tax Audit deadline has passed, what could be consequences even if I get a Tax Audit done at this juncture?
Please advise and should you think there is some other points that need consideration, please share your thought about that also.
TIA
TradeDaTrend
And here is the some of the text from ZV's site, that I found pertinent in this case.
An audit is required if –
Rs 2 Crores mark – Turnover for the year crosses the Rs 2 crores mark (was Rs 1 crore until FY 16/17)
Section 44AD – If the turnover is less than Rs 2 crore, and if profit less than 8% of turnover and total income exceeds basic exemption limit(An audit is not required if turnover is less than Rs 2 crores but your total income is within the taxable limit of Rs 2.5lks).
The method of calculating turnover is a debatable issue and what makes it a grey area is that there is no guideline as such from the IT department. One article of great help though is the guidance note on tax audit under Section 44AB by ICAI (Institute of Chartered accountants of India, the governing body for CA’s). The article on Page 23, Section 5.12 of this guidance note has a guideline on how turnover can be calculated. It says:
Non-speculative transactions (Futures and options)
For all non-speculative transactions, the article says that turnover to be determined as follows –
The total of favorable and unfavorable differences shall be taken as turnover
Premium received on sale of options is also to be included in turnover
In respect of any reverse trades entered, the difference thereon should also form part of the turnover.
So if you buy 25 units or 1 lot of Nifty futures at 8000 and sell at 7900, Rs.2500 (25 x 100) the negative difference or loss on the trade is turnover.
In options, if you buy 100 or 4 lots of Nifty 8200 calls at Rs.20 and sell at Rs.30. Firstly, the favorable difference or profit of Rs 1000 (10 x 100) is the turnover. But premium received on sale also has to be considered turnover, which is Rs 30 x 100 = Rs 3000. So total turnover on this option trade = 1000 +3000 = Rs 4000.
http://zerodha.com/varsity/chapter/turnover-balance-sheet-and-pl/
I trade in F&O. 98-99% in options.
For taxation purpose I am calculating Turnover as advised by Zerodha Versity, I consider them competent enough to follow their advise.
My Turnover for FY 2015-16 (AY 2016-17) is slightly more than 1 crore, i.e. turnover is 1.2 crore.
Profit is less than 8% of 1.2 Crore (WRT Sec 44AD)
My main questions are as follows:
1. In this condition is a Tax Audit absolutely compulsory?
2. If yes, what could be consequences for non-compliance ? (I mean i am a too small fish for IT guys, people have turnover of 100s & 1000s of crore, so would IT guys come after such a small fish?)
3. Tax Audit deadline has passed, what could be consequences even if I get a Tax Audit done at this juncture?
Please advise and should you think there is some other points that need consideration, please share your thought about that also.
TIA
TradeDaTrend
And here is the some of the text from ZV's site, that I found pertinent in this case.
An audit is required if –
Rs 2 Crores mark – Turnover for the year crosses the Rs 2 crores mark (was Rs 1 crore until FY 16/17)
Section 44AD – If the turnover is less than Rs 2 crore, and if profit less than 8% of turnover and total income exceeds basic exemption limit(An audit is not required if turnover is less than Rs 2 crores but your total income is within the taxable limit of Rs 2.5lks).
The method of calculating turnover is a debatable issue and what makes it a grey area is that there is no guideline as such from the IT department. One article of great help though is the guidance note on tax audit under Section 44AB by ICAI (Institute of Chartered accountants of India, the governing body for CA’s). The article on Page 23, Section 5.12 of this guidance note has a guideline on how turnover can be calculated. It says:
Non-speculative transactions (Futures and options)
For all non-speculative transactions, the article says that turnover to be determined as follows –
The total of favorable and unfavorable differences shall be taken as turnover
Premium received on sale of options is also to be included in turnover
In respect of any reverse trades entered, the difference thereon should also form part of the turnover.
So if you buy 25 units or 1 lot of Nifty futures at 8000 and sell at 7900, Rs.2500 (25 x 100) the negative difference or loss on the trade is turnover.
In options, if you buy 100 or 4 lots of Nifty 8200 calls at Rs.20 and sell at Rs.30. Firstly, the favorable difference or profit of Rs 1000 (10 x 100) is the turnover. But premium received on sale also has to be considered turnover, which is Rs 30 x 100 = Rs 3000. So total turnover on this option trade = 1000 +3000 = Rs 4000.
http://zerodha.com/varsity/chapter/turnover-balance-sheet-and-pl/