Tax Audit Requirement for F&O Trading in FY 2024-25 (AY 2025-26): Explained for Salaried Individuals
Are you a salaried person dabbling in Futures & Options (F&O) trading and incurred a loss? Got a notice under Section 139(9) for a defective return? Wondering whether a tax audit is mandatory? You’re not alone.
This blog aims to clarify whether you need a tax audit to file or revise your ITR and carry forward F&O losses, based on current income tax provisions and recent amendments for AY 2025-26.
🧾 Scenario
“I am a salaried employee and have also traded in Futures and Options during FY 2024-25. I incurred a loss, and my turnover is below ₹1 crore. I filed my return showing this loss, but I received a defective return notice under Section 139(9) for not submitting a tax audit report or financial statements. Is tax audit mandatory?”
Let’s decode this situation step-by-step.
📌 Tax Audit Basics Under Section 44AB
Section 44AB of the Income Tax Act lays down the thresholds and conditions for mandatory tax audit.
Here’s when tax audit becomes mandatory for individuals engaged in business or profession:
-
Section 44AB(a) – Business Income:
- Tax audit mandatory if turnover exceeds ₹1 crore.
- However, enhanced limit of ₹10 crores applies only if:
- Cash receipts & payments each ≤ 5% of total transactions.
-
Section 44AB(e) – Presumptive Scheme Opt-Out:
- If you had opted for presumptive taxation (u/s 44AD) in any of the last 5 years, but do not opt for it this year AND your income exceeds the basic exemption limit, then tax audit is mandatory.
💡 Important Note on F&O Trading
F&O trading is treated as a non-speculative business. Hence, reporting is done under “business income”, and the turnover is calculated using absolute profit and loss values (not contract values).
For example, if your trades result in:
- ₹2.5 lakhs of profit and
- ₹2.2 lakhs of loss
then turnover = ₹4.7 lakhs.
📘 Do You Need Tax Audit for F&O Loss?
Let’s simplify based on two common cases:
✅ Case 1: You Did Not Opt for Presumptive Taxation (u/s 44AD) in the Last 5 Years
- Turnover < ₹1 crore
- No tax audit required
- But you must maintain books of accounts under Section 44AA
- File ITR-3 with Profit & Loss and Balance Sheet
- Still eligible to carry forward losses
❌ Case 2: You Did Opt for Presumptive Taxation in Any of the Last 5 Years
- Now you’re not opting for 44AD
- Income exceeds basic exemption limit
- Tax audit mandatory under Section 44AB(e)
⇒ You must file Form 3CB/3CD (Tax Audit Report)
⚠️ Received a Defective Return Notice u/s 139(9)?
If you’ve received a defective return notice from CPC due to:
- Missing tax audit report
- Missing balance sheet or P&L
👉 You must revise your ITR and include the required documents. Non-compliance may lead to return being treated as invalid.
📊 Examples for Better Understanding
🔸 Example 1:
- Turnover: ₹90 lakhs
- Salary: ₹20 lakhs
- Loss from F&O: ₹5 lakhs
- Not opted for presumptive scheme earlier
👉 No tax audit needed, but file ITR-3 with financials.
🔸 Example 2:
- Same as above but opted for 44AD last year
👉 Tax audit required under Sec 44AB(e)
🔸 Example 3:
- Turnover: ₹1.5 crore
- Cash receipts > 5% of total
👉 Tax audit mandatory u/s 44AB(a)
📌 Other Key Notes
- Professionals (like consultants, freelancers) with receipts > ₹50 lakhs (or ₹75 lakhs with digital transactions) also need tax audit.
- Section 44AB(a)’s ₹10 crore limit is not applicable to professionals.
- If you want to carry forward business losses (F&O), ensure books of accounts are properly maintained even if audit isn’t required.
✅ Summary: Tax Audit Checklist for F&O Traders
| Criteria | Tax Audit Required? |
|---|---|
| Turnover < ₹1 Cr, no 44AD in past | ❌ No audit, but books needed |
| Turnover < ₹1 Cr, opted 44AD in past | ✅ Yes, u/s 44AB(e) |
| Turnover > ₹1 Cr, cash > 5% | ✅ Yes |
| Turnover > ₹2 Cr, not using 44AD | ✅ Yes |
| Turnover < ₹10 Cr, cash ≤ 5%, using 44AD | ❌ No audit |
📩 What Should You Do Next?
At Indian Tax Planning, we help clients like you:
- File or revise returns under ITR-3
- Determine whether audit is mandatory
- Coordinate with a Chartered Accountant for audit report
- Ensure proper filing of financials to carry forward losses legally
👨💼 Need Help?
Reach out today for a consultation or to get your return filed without errors or penalties.
“Stay compliant. Avoid notices. Protect your losses.”
Let the experts handle your tax worries — so you can focus on your trading.
