Are You Covered Under Tax Audit

[canikhil]

1. Salary - No
2. Income from house property (any difference between residential and commercial property income) - Yes in the same year. If carried forward can only be adjusted against income/loss from house property only
3. Income from speculative gains - Yes But speculative losses can be carried forward for 4 yrs and adjusted against future speculative gains only.
4. Short term capital gains - No
5. Long term capital gains - No
6. Income from fixed deposit - Yes
7. Savings bank account intrest - Yes

PLease refer this link for detailed info : http://www.incometaxindia.gov.in/Tutorials/21- MCQ set off and carry frwrd.pdf

Just a small correction here: Business loss (non-speculative) can be adjusted against capital gains. The question is about set off business losses against other sources of income.

 

[canikhil]

Thanks bhai.
I asked only because I found 2 discrepancy in your post. I may be wrong as well. Myself also, a trader only, with very basic knowledge of income tax.

1. AFAIR, CA Nikhil has posted previously, somewhere, that income from house property is adjustable with trading loss.
2. Income from speculative gains is also adjustable with trading loss, (as per the link post by you, to my best understanding)

I believe what he posted was on how different losses are treated. You are correct in your assessment on how different incomes are set off against non-speculative business losses.

 

[canikhil]

Dear Sir,
If salary is taxed and loss F&O trades not reported. what is the fine sir?

No.

1. Your F&O trades are reported to the Income-tax department. So they know about your activities

2. Filing ITR-1/ITR-2 omitting F&O transactions amount to wilful wrong filing.

 

[canikhil]

Thanks

The main problem lies in the calculation of turnover of options trades. I didnt understand the rationale behind addition of sale value of option trade with profit and loss values. Why this addition.

Say for example:
Profit is A, loss is B and sale value is C

For future, the turnover is A + B (C is not added in future TO)
but
For options, the turnover is A + B + C,

this addition of C increases the TO by multifolds and is the main reason behind declaring loss in trading, otherwise one can very easily declare 8% presumptive profit, even if in loss or lesser profit.

Please be kind enough to clarify, why this addition of C is there.
Thanks

PS
This question is open to other members for their comments. I wanted to open a thread on this question, but afraid of participation, so didnt open

Totally agreed to your point. In general, in any other business, only the sell value is taken as turnover. But then if you apply the same principle to futures, what will be the result! even with 20-30 trades, you will breach the tax audit limit.

I believe the intent behind this formula is to capture a certain degree of actual values as just the option value or premium doesn't reflect to overall nature of transaction.

 

[canikhil]

Is that rule vary person to person? CA to CA?
My CA calculated option turnover same as future and I don't get any scrutiny notice yet.. He is a good CA from Mumbai and I don't want to mention his name..
He said, there is a gray area..no need to worry as I paid full tax, he can calculate turnover again if required. Tax don't changes with turnover.
But with C my turnover easily hit above 2Cr.. Audit required, which I don't gave.. But that is absurd..I traded only on premiums.

I have one more advantage.. All F&O trades squared of intraday, not a single contract Exercised.. May be thats why IT don't dare to challenge me..:lol:

Your real worry starts only if you get a notice. Till no notice is issued, everything passes as good. But trust me, once a notice is issued, your CA will have a hard time convincing the AO when he is going against the guidance note issued by ICAI itself.

 

[canikhil]

Thanks, ST, for the concern.. but he is very well known CA. I trust him, this is 3rd year. I am escaping.

Is that bcoz of only intraday trades. Or no tax due. I don't know the real reason. But if there is no tax due, I think the penalty is very less for just not doing an audit. IT respect true tax payers.

Anyone can confirm what is fine in my case when no tax is due. Only option turnover is defective.

That depends on what your real turnover will be once corrected.

1. If you are filing under 44AD, then it will lead to higher tax liability plus interest and penalty for evasion of taxes.

2. If the turnover crosses tax audit limit, then the penalty for non-compliance of tax audit regulations.

 

[canikhil]

for 8% presumptive income ITR4 or ITR4s?

that will depend on your other sources of incomes. You can file under 44AD in ITR4 also.

 

[canikhil]

If the tax is NIL,then also there is penalty?

yes, if the tax audit was applicable.

 

[Aman1]

My wife has no income and her turnover less than 1cr. She has net loss 1lac. is she required to file return?

 

[canikhil]

Wow, I got it, the penalty for the wrong turnover can be 1/2% of turnover with a maximum limit of 1.5 lakh.. I probably saved already saved 50,000 in 3 years..
A risky trade is going..

Or maybe my CA knew it all, thre is gray area.. he can handle the case. Maybe very rare case that IT slap a big penalty on a F&O trader, just for trading options when no tax is due.

He said most of the cases a scrutiny notices will come quickly, that a full audit is required.
Another important thing he always filed earliest. So difficult to impose a direct penalty as there is time to resend. Now a delayed scrutiny notice is a rare case.
I think he took the calculated risk. But this is not advisable, probably... unless CA is good and confident that he can handle the consequences easily..

Well, after handling more than 100 assessment on F&O side, I can say two things:

1. the AOs don't understand **** about F&O trades. They get a file from your broker/exchange that gives gross values of the trades done against your PAN. It is a very hard process to convince any AO to ignore those gross values and look at the computation done as per guidance note issued by ICAI.

It is almost impossible to convince the AO to agree on a computation done in violation of the guidance note.

2. so what it leads to is bribes! often more than what you intent to save!