Notice under Section 139(9)? – Possible reason

June 10, 2013

Traders,

Firstly it is important to understand the difference between Assessment Year(AY) and Financial Year(FY). If someone is saying that he has just filed his returns for AY 2012-13, this means it is for income in the financial year 2011-12(Apr 1st 2011 to March 31st 2012). So technically AY 2012-13 and FY 2011-12 are the same.

Notice under Section 139(9)

A lot of us traders would have probably received notices from the IT department in the last few months or might receive in the future under section 139(9). These notices have been a cause of concern of many and this post is to discuss on a possible reason for you receiving this notice.

I’d also suggest you to read our blog ” Taxation Simplified” where we have discussed on best practices to follow in terms of taxation when trading the markets.

As discussed on the above blog, everyone trading the markets actively (as a business) have to use the ITR4 forms to file their returns. Any trading in futures and options active or passive is considered as a business and hence you have to use ITR4 compulsorily. When filing the ITR4 traders are required to have an audit by a CA only if the turnover exceeded Rs 1 crore. (Turnover of 1 crore while trading would mean settlement profits + settlement losses and not the contract turnover).

To give an example if you bought 1 lot of 50 Nifty futures at 6000 and sold at 6100, your settlement profit is Rs 5000 (50 x 100) and this is the turnover. Only if all such profits and losses during the year add upto 1 crore would a trader have his books audited by a CA.

This was what a trader would have followed, but over the last few months since a lot of us received notices, we tried to dig into the possible reason behind this. These notices would be under Section 139 (9) which is for defective returns.

We have realized that most of these notices are due to an amendment of Section 44AD. Until AY 2011-12, only the civil construction business was included in this section, but from AY 11-12 all business including the business of trading was brought under this section. What 44AD says is that if in case the turnover is lesser than Rs 1 crore and the profits are lesser than 8% of the turnover, an audit by a CA is mandatory and this now is applicable to the business of trading stock/currency/commodity markets. What this would mean is that  if your profit is less than 8% of  turnover for the year, even if your turnover is less than 1Crore (however small) you will need your books audited by a CA. So if you made a loss while trading, since it is less than 8% of your turnover, you will need to get an audit done by a CA.

*In case your turnover is less than 1crore and profits more than 8% of turnover, you will not be required to get your books audited by a CA.

In the business of trading stock/commodity/currency markets, the relation of turnover and profits are not similar to traditional businesses and including this under section 44AD will cause inconvenience to retail traders as almost everyone irrespective of the turnover would then have to maintain a book of accounts and have it audited by a CA. This would mean added costs in terms of fees paid and time spent with your CA for people trading the markets.

But note that if your total income for the year (trading + Salary+ any other income) is less than Rs 2.5lks (the minimum tax slab), this would mean that there is no tax you have to pay, and hence no need of an audit.

What does maintaining books mean? What does get your books audited by a CA mean?

It could be as simple as keeping an Excel sheet:

1. Accounting for all funds moving in and out (bank account statement as proof) of your trading account; call this as a “Bank Book”.
2. Profit and Loss statement (P&L report from Zerodha will give you settlement turnover and profits/losses with contract notes as proof; you don’t need to print the contract note)
3. DP statements as proof for any stock bought/sold or transferred from another account.
4. If you claim any expenditure like salary, rent, internet bill, conveyance, depreciation of computer or any other expense for your business of trading, keep copies of all such bills.

Books Audited by a CA:

Take all these details above and meet a CA, he will verify, sign it and apply your ITR4 online. Make sure you tell him to download the latest ITR4 forms from the income tax website as this could also be a reason for rejection.

Since the process is completely online now, the IT department I guess has been able to spot these deficiencies because of section 44AD in ITR4 and the notices have been auto-generated and sent out to those with a profit less than 8% of the turnover and whose books haven’t been audited by a CA.

If you have received a notice, I’d suggest you to consult your CA and look at rectifying the defects mentioned in the notice within 15 days of receiving or ask for an extension of time to remove the defect(s) and file again. If you haven’t and you are trading futures & options on stock/commodity/currency markets make sure to follow section 44AD in future and have your books audited by a CA irrespective of your turnover to avoid such notices.

Zerodha and TaxIQ have already sent a petition to the income tax department telling them about the inconvenience traders would face because of the amendment of this rule, hopefully good sense prevails.

Happy Trading,

Nithin Kamath

Founder & CEO @ Zerodha, team working towards breaking all barriers that I personally faced as a retail trader for over a decade. Love playing poker, basketball, and guitar. Getting body fat % in single digit is the next personal endeavor :) .

370 comments

  1. anand says:

    A great support and help…
    A great leadership quality… to help the customer…
    Really Helped a lot.

  2. Tharun says:

    Hi,
    I have not filed my IT returns because i’m not salaried, i made 70k loss,should i file the tax.
    if yes tell me steps to file it, this is my first time.
    Thank You.

    • Nithin Kamath says:

      Tharun,

      You definitely should especially if you have done any futures and options trading during the last year. There are 2 things that will help

      1. If you declare this loss, you can carry forward this for the next 7 years and set it off against any business income of yours. So this way your loss will automatically reduce by how much you save taxes.

      2. If you don’t file your return, there is a possibility that tomorrow you might get a notice from the IT department asking you to pay taxes considering your profit as 8% of the settlement turnover. The chances are low, but there is a possibility and can compound your losses based on how much turnover you have done.

      If it is your first time, take the proofs that I have mentioned above and go to a CA and ask him to file your returns.

      • ritesh says:

        hello,
        i have done 4 futures trades in the whole year which resulted in loss,which means i come under the category of profit of less than 8%.
        Do i still need to get books audited for just 4 trades ???

        • Technically yes as per the section, but the section itself is a flawed logic, so I’d suggest you to consult your CA. But do make sure to show the F&O trades you have done while filing your returns, if you get it audited or not.

          • ritesh says:

            Thanks, now i would like to know one more thing.I m not a regular trader just like i told u.My annual income is less than 1.5 lakhs.Even if i trade the way above occasionally,where its futures or intraday cash ,do i still have to file a return,i mean i have been doing it for past 3 yrs no problems, but can i skip it.?
            Does filing of returns is “COMPULSORY” for everybody who is trading indian markets even if that person comes under the slab of zero tax ??

            • Yes ritesh, it is compulsory to file your returns, remember that your PAN is mapped to your trading account, and every trade you execute is accounted for. You may not have trouble, but if there is trouble in the future, everything can come back to haunt you. Today our IT department is going online, and hence getting a lot more efficient, sooner than later, everything will get automated, and if you get a notice they will ask you for the last 3 years returns.

              If you haven’t filed till now, make sure that you change your habit and be disciplined on this in the future.

              Cheers,

      • Daniel says:

        In this case ,does the books of accounts has to be Audited?

    • Tharun says:

      Hi,
      Zerodha sent me a combined account statement in that my transaction value is 3.40 lac.
      my loss is 70+k.
      I should take my contract notes to CA and any other documents.

    • Nithin Kamath says:

      Tharun,

      As explained make a bank book on excel showing all credits and debits from your trading account and attach the bank statement as the proof.

      Attach you PL statement from Zerodha which shows you turnover of 3.4lks and loss of 70k.

      You can also show other expenses that you have incurred for trading like internet bill, electricity, computer depreciation, any services you have subscribed to and etc. You can add all these as you costs of running your business. For example if you show 30k as these costs, you can add it to 70k and your net loss will be 1lk.

      Go to CA and he will file this using ITR4 and ask him to file saying a loss of 1lk.

      You can carry forward this loss for next 7 years and anytime you make business profits, you get to set off and hence not pay any taxes. So if this year you make trading profit or any business profit of 10lks, you will need to pay tax only on 9lks ( 10lks-1lk loss that you carry forwarded)..

      Hope this helps,

      Cheers,

  3. Santosh says:

    Basically, you are saying that the ITR4 should be filed by a CA and not yourself to comply with 44AD (of course, after tallying the profit/loss correctly and declaring it in the ITR4). So, we will have to pay 500 or 1000rs or whatever he takes to file under his user-id (TRP or TPR.. whatever it is called). Is my understanding right?

  4. Shri says:

    Thank you for your help and info.

    I have been trading since last year from nov 2012. I have done trading on full time basis since nov nov and I dont work anywhere and not salaried. I have not made much profit but incurred a loss. Profit around total 50k and net loss around 27k. I did in F & O. Do I need to get documents audited by CA. This is my 1st time.

    Kindly give me advice.

    Thankyou.

    • Nithin Kamath says:

      Yes Shri,

      If you have been trading f&o, you have to, Check this conversation I just had with Tharun, you will basically need to follow the same.

      Tharun replyJun 10 2013, 8:56 pm
      Hi,
      Zerodha sent me a combined account statement in that my transaction value is 3.40 lac.
      my loss is 70+k.
      I should take my contract notes to CA and any other documents.

      [ Click to thank ]Zerodha replyJun 11 2013, 9:10 am
      Tharun,

      As explained make a bank book on excel showing all credits and debits from your trading account and attach the bank statement as the proof.

      Attach you PL statement from Zerodha which shows you turnover of 3.4lks and loss of 70k.

      You can also show other expenses that you have incurred for trading like internet bill, electricity, computer depreciation, any services you have subscribed to and etc. You can add all these as you costs of running your business. For example if you show 30k as these costs, you can add it to 70k and your net loss will be 1lk.

      Go to CA and he will file this using ITR4 and ask him to file saying a loss of 1lk.

      You can carry forward this loss for next 7 years and anytime you make business profits, you get to set off and hence not pay any taxes. So if this year you make trading profit or any business profit of 10lks, you will need to pay tax only on 9lks ( 10lks-1lk loss that you carry forwarded)..

      Hope this helps,

      Cheers…

  5. Sumanth says:

    Hi,

    I had a query: what happens if my turnover is less than 1crore and my profit is more than 8%? Please guide me across.

    Thnks in adv

    • Nithin Kamath says:

      If your turnover is less than 1 crore and profit more than 8%, you will not need your books to be audited.

  6. Maahi_007 says:

    Hey,

    How many years can i carry forward my loss ? I had read its somewhere close to 8 years. Is it correct ? For an entrepreneur is it the same way the taxation occurs ?

    • Nithin Kamath says:

      Yes all business losses including that arises of trading in the markets can be carry forwarded for 8 years and can be net off against any other business profits during this period. But this is possible only if you have declared the losses on time…Read our blog ” Taxation simplified” for more…

  7. Alok says:

    Hi,

    Please let me confirm following and please reply.

    1 April 12 to 31 March 13 my trading Balance sheet as following. Capilal for margin Rs 300,000

    Nifty Future Net profit 22000
    Nifty Option Loss 8500
    Stock Future Net Profit 11500
    Currency Net Loss 3000

    Total Net Profit Rs 22000

    What is the my turnover ?
    How much % profit ?

    Thanks and Regards
    Alok

    • Nithin Kamath says:

      Alok,

      How we would calculate is nifty future, you would have probably traded different expiry of the same contract.

      So Nifty Jan, there would be a net buy and net sell value, this difference would be the settlement turnover…

      Like this add all the various Nifty future expiry contract and this would add to your total nifty future net turnover.

      For example for nifty jan you are +10000, Nifty Feb -5000 , now your total turnover is 15000 and all such turnovers together will be nifty net turnover.

      You have to apply same rule for different option contracts, etc… You can pull the PL report from the Zerodha Backoffice, will give you the turnover.. At the bottom you will see Net receivable and net payable, add both these values, should give you turnover…

    • Nithin Kamath says:

      Your chartered accountant might have a different way of calculation as there is not clear guideline on this. So be advised to consult him..

  8. bkr says:

    Profits>= 8% of turnover!! I think all Indian traders should stop trading and become passive investors in MFs. The brokerage industry must lobby hard against this nonsense rule.

  9. KRS says:

    Dear Zerodha Team,

    Thanks to the informative post on this useful topic, and am filing the rectified return today as it’s the last day for me under the 15 day time limit and need one urgent clarification please.

    could you please give your opinion whether we should file the rectified return as a ‘Revised’ return or ‘Original’ return? I called up CPC helpline and they said it should be filed as ‘Revised’ return, but when I select the ‘Revised’ return option under section 139(9) in the ITR4 excel utility, it pops up a message that return Type cannot be ‘Revised’ unless it’s filed under section 139(5). However,it still allows me to select the return type as ‘Revised’ if I ignore the message.

    Please suggest whether filing it as ‘Revised’ return is correct.

    Thanks in advance!
    KRS

    • Nithin Kamath says:

      KRSJun 14 2013, 10:39 am
      I also called up the efiling helpdesk and spoke to a line supervisor there, and they are saying it must be ‘Original’ if it’s under 139(9) and that ‘Revised’ can only be under 139(5). This also tallies with the ITR4 excel utility message that I’ve described in the above post.

      Am totally confused now on the return type to be selected, and unfortunately it’s last date today, please help ASAP..

      Thanks
      KRS

    • Nithin Kamath says:

      KRS,

      Hopefully your issues got sorted, but our view on this is that since the notice you have received is under 139(9), you should file rectification u/z 139(9) and if it is not letting you revise then your original return would probably have become invalid. You cannot revise a return which has become invalid.

      What you could do now is to file fresh return as the old one is invalid and u/s 139(4) for belated return.

    • anjani9909 says:

      Dear KRS,
      I also called to efiling helpdesk and they confirmed that 139(9) comes under original return. I assume 139(9) only mean that we are given a chance to correct a perticular defect in original return and not change/revised the complete return, hence original.

  10. Lijoo says:

    Thanks a lot for the article.

    I have some shares bought and sold and still holding some in my demat account. For taxation purpose, if I download the Trade Analysis for NSE equity, my day trading and cash transactions are showing together. How can I get the cash and day trading seperatly or is there a way to find the day trading profit/loss and cash buy/sell transactions ?. Please help me in this regard.

    For F& O there is no problem at all.

    Regards,

    LIJOO
    DL0071

  11. Aman says:

    sir i m a salaried person nd i trade very rarely, do i need to fill the return as ITR4????

  12. Tushar says:

    Hi,

    I am in the process of finalising my tax return. Can you please suggest if I should show my loss from commodity trading as speculative business loss or regular business loss.

    Thanks
    Tushar

    • Nithin Kamath says:

      You should show this as a business loss, there was a lot of question mark on this, but the FM clarified it this year.

  13. NEO says:

    Hi Nithin ,
    Excellent article with lots of insight. There has been so much of ambiguity in filing return for a trader of F&O. Not any more.
    While section 44AD provides more clarity on filing the correct return, I too genuinely believe that this decision failed to consider the impact on small F&O traders.

    I would like to add that traders whose total income doesn’t exceed the maximum amount which is not chargeable to income-tax need not maintain book of accounts and get them audited.

    One question though:
    Most of the traders getting notice under section 139(9) wouldn’t have their account audited,until the receipt of notice.
    While filing revised return, one needs to mention the date of audit. One ambiguity arises here as the last date of audit for f.y. 2011-12 would be 30th Sept 2012 and any audit done after that
    incurs a penalty( to the tune of 1% of turnover). So even if one files revised return, with audit done, one incurs a penalty..any views?

    Thx,
    Neo

    • Nithin Kamath says:

      Yes NEO,

      I guess the only option would be file a revised return as the other one would be considered as invalid.

      So yes I guess there will be no getting away some kind of penalty, either pay 1% of the turnover and submit revised returns or else risk getting penalized a lot more if you don’t file a revised return.

    • anjani9909 says:

      Hi NEO,
      I assume 139(9) only mean that we are given a chance to correct a perticular defect in original return which is filed in time. I also called to efiling helpdesk and they confirmed that 139(9) comes under original return. So I think if notice under 139 (9) is about audit, Income tax department gives us a chance to get it audited. Hence we can right the correct audit date even if it is later than 30th sept.

      However take suggestion of your CA as well.

  14. harsh300684 says:

    Hi Zerodha,

    Pl help me to clarify….

    Hi members I have received notice from income tax regarding rectification sec 139(9) becoz i filed loss in f&o moreover i am not maintaining books of account..my turnover was 5 lakhs and have loss of 20 k rs…as per notice my books are not audited…my question is whether i can file rectification return with 8% profit i.e 40 k rs and i fall in 20% slab so pay around 8 k to IT…becoz audit and other charges will cost me around 12 to 15 k….also i have previous year loss to carry forward…so whether i can set off against this profit shown?

    My time line of 15 days is running out…also my CA has already taken more than 10 days….but yet no progress !!

    • Nithin Kamath says:

      harsh,

      Presently the law states that you can file rectification return with 8% profit and pay tax accordingly. But this law is kind of a loophole which people can misuse, not in your case but in cases where profit is more than 8% but turnover less than 1crore. They can get away paying only taxes on 8% of this as profits.

      If you have a previous year loss, which you have declared, yes you can definitely carry forward and set off against this profit, again a loophole in the system. 🙂 ..

  15. anjani9909 says:

    Two quick questions:

    1. If filing return after getting the books of account audited (as I have loss in FNO), do I need to have digital signature? As I think digital signature is mandatory for filing return for all the audited cases. Please confirm?

    2) Does currency option trading come under speculative business income (as no STT applicable for it)?? Please suggest.

    • Nithin Kamath says:

      Hi Anjani,

      1. Yes digital signature is mandatory. The cost of digital signature though has dropped today to as low as Rs 500, but yes you would have to take the effort of applying for it.

      2. According to us, Currency trading similar to f&o trading on equity/commodity can be considered as a business income.

      We don’t think that having STT or no STT is a condition for a certain type of trading to be speculative or not. In case of commodities also it was clarified by the finance act, 2013 that it is non speculative, even though there is no STT/CTT involved.

      Cheers,

  16. Shreak says:

    Hello My fav broker 🙂

    In the blog you mentioned “P&L report from Zerodha will give you settlement turnover and profits/losses with contract notes as proof; you don’t need to print the contract note”.

    Where can I get this report? I couldn’t find it in the back office.
    It would really be helpful if I could just select dates (1 apr to 31 mar) and the report shows total turnover and P/L.

    • Nithin Kamath says:

      Yes Shreak, the report is available and thanks for the kind words 🙂

      Since you are pulling data from last financial year, you need to first change the financial year on the top right of the backoffice window.

      Go to NSE FNO and you will see an option P&L,

      If you are not able to find, shoot an email to [email protected], we will email yours for the last year to you.

      Cheers,

    • Shreak says:

      Thanks for this.
      I only do equity and as I can see there is no such P/L for equity?
      I have only downloaded a statement for last financial year. Is that it?

    • Nithin Kamath says:

      Under NSE equity you will see an option called Account analysis, change the financial year and should be fixed.

      Cheers,

      Nithin

    • Shreak says:

      Awesome. That report is super useful. Just one last question, what should I do with open delivery positions that got settled in next financial year? For example, I took delivery of 10 SBIN share in February 2013 and sold it in May 2013. I only took report from 1 Apr ’12 to 31 March ’13, so it is obviously showing that SBIN amount as negative in the overall net. Can I show this as a loss (and subsequently as profit while filing next years return) or just extend the report till that date which settles all open deliveries?

      Advance thanks; for this will complete my questions.

    • Nithin Kamath says:

      What I’d suggest is that especially if you are an active investor/trader, adjust the value of it as per 31st march 2013. For this year you can carry forward the delivery with this price as the reference to calculate this years profitability.

      hopefully this clarifies.

  17. rb7268 says:

    Hi,

    I hear the different opinion from the auditor that turnover is what is total buy / sell value not the settlement profit + loss, so I am bit confused. Appreciate if you could clarify.

    Also, is this 31st July last date for individual submission even if it is audited. My auditor says all the audited tax return last date is 30th September 13. Could you please clarify this as well?

    Appreciate your kind response in this regard.

    Thanks,
    Sriny.

    • Nithin Kamath says:

      RB,

      For audited returns the last date is 30th Sept.

      About the turnover, CA’s themselves have divided views on this, but the correct view according to us is settlement profit + settlement loss and followed by professional traders across.

  18. RAVI92 says:

    Hai, I have filed my IT Returns on ITR1 on 15th July 2013. The interest earned on my SB a/c was inadvertently shown under other income. However I came to know that the same will qualify under Sec.80 TTA. Can I revise the returns and file under Section 139 (9) – defective return giving the original acknowledgement number. Pl. advie. Ravi92

  19. RAVI92 says:

    Hi,
    As regards the interest on SB A/cs which is less than Rs.10000/- — Should this be declared first under the Income from other sources and then claim deduction under Chapter VI A u/s 80 TTA.

    Appreciate your advice.

    Tnx & Regds
    RAVI

  20. ajay74 says:

    Hi Nithin,

    I have day traded (not F&O) and my aggregate of net profit and loss is considerably less than 1CR. Do i need to get the audit done?

    Regards,
    Ajay

    • Nithin Kamath says:

      Ajay,

      Even in case of intraday equity trading, if profits less than 8% of turnover, it is still advisable to get the books audited.

  21. KD213079 says:

    Dear sir,

    How much amount can be save for tax rebate of my husband and my money.

    Like 2lakh + 2.2 lakh both of us = 4.4 lakh is free of tax

    Regards,

    Reena sharma
    DR0555

    • Nithin Kamath says:

      Reena,

      Can you put your question a little more clearly. Check this blog on taxation that we have put, explains the tax brackets. Upto 2lks for a male and 2.5lks for a female per year is exempt from taxes.

    • Nithin Kamath says:

      Reena,

      Can you put your question a little more clearly. Check this blog on taxation that we have put, explains the tax brackets. Upto 2lks for a male and 2.5lks for a female per year is exempt from taxes.

    • KD213079 says:

      Sir

      I want to know that, how much amount could be saved without any tax on my and my husband’s account for tax rebate.

      Reena sharma
      DR0555

    • Nithin Kamath says:

      2lks for a male and 2.5lks for a female. Upto this much income no tax applies.

    • KD213079 says:

      SIR

      ON 4.5 LAKH BOTH OF MY HUSBAND AND ME. THERE IS NO TAX. AM I RIGHT

    • Nithin Kamath says:

      Reena,

      Sorry about the earlier information, the exemption upto 2.5lks is only for senior citizens.

      2lks for you and 2lks for your husband, together upto 4 lks from both of you is exempt from taxes. after 2lks the slabs are as mentioned on this blog.

      Cheers,

  22. PKB says:

    Hi..

    I am a student and normally trade in Options only. I am still confused with what does turnover means u/s 44AD. In my client summary report on Back office at zerodha following details are shown:
    Transaction Total : 79448.77(Dr.) 81462.52(Cr.)
    Closing Balance : 2013.76( Profit)

    I want to know whether turnover is 160911.29 or 2013.76.

    If turnover is 2013.76 then whether 8% is to be computed on this for presumptive taxation?

    If turnover is assumed to be 2013.76 then there would be no need of getting Tax audit since neither turnover exceeded 1 crore nor profit is less than 8% of turnovers.

    And in case of loss how can turnover be negative?

    Thanks

    • Nithin Kamath says:

      Turnover is all credits +debits in case of options. So 1.6lks in your case and if your net profit is Rs 2000, then it is around 1% of your turnover and hence you will need the books to be audited..

    • Abrar says:

      In another query in tax simplified blog you replied that settlement profits+loss is turnover in options, for example if i sold nifty pe @ 10 and bought back @ 5 then my profit of rs 5 is turnover, here you are telling the opposite I guess

    • Nithin Kamath says:

      Abrar,

      When you sell options nothing is debited from your account, only a margin is blocked in your trading account. This margin blocked is not considered for turnover and hence we use the settlement profits.

      When you buy an option first and if you hold the position to the next day, the premium amount gets debited from your trading account and when you sell the premium gets credited. In this case the entire premium debit + credit has to be considered for turnover.

      But as I mentioned earlier, this calculation of turnover is a complete mess since there is no guidelines for the same, so it is best to get your books audited if you are a f&o or a frequent equity trader.

  23. sarvesh says:

    dear sir
    i dont come under taxable income group .so i dont fill income tax return.but i have invested 2 lacs rupee that were my small saving in my bank a/c .i bought shares amounting 200000. on fy 2009-10. but now i have received a letter from income income tax dep.mentioning non filling itr and 200000 rs trantion have been done.my annual inconme still below 1 lacs .i do trading with you .how can i fill itr as my income is as low as 1 lac. so what should i do .

    • Nithin Kamath says:

      Sarvesh,

      It doesn’t matter how much income you have or if you make losses, but when trading the markets you would need to file IT returns.
      You will not need to pay income tax, but you have to file your IT return.

      As far as the notice goes, I guess you will need to go to a CA and file delayed returns.

      Cheers,

  24. KumarVij says:

    A recent court decision may clarify things:

    High court of Punjab and Haryana has decided in IT Appeal No 494 & 495 of 2005 on July 17, 2012 that if there is no profit, section 44AB is not attracted and there can not be a penalty for not getting account audited. Pl search google for details.

    Section 44AD is a facility for small businessman to pay 8% of turnover and forget otherthings like maintaining book of account etc. If he pays 8%, tax people shall not ask anything else.

    Please see there is a difference between a business and an income being treated as business income. Probably derivative trading is not a business but its income shall be treated as business income

    • Nithin Kamath says:

      Hi Kumar,

      There is no clarity on this and ideally what we need to follow is a path which is as close to being compliant. Income tax department even doesn’t have guidelines on how to calculate turnover and ICAI is probably the closest.

      Yes stock trading is not a traditional business and shouldn’t not be treated as one, but we have to go by what IT department says. A lot of notices have been received and probably will only go up in the future and the best way to avoid is to have the books audited if you make profit less than 8% of turnover or if turnover above Rs1cr.

      Cheers,

  25. RAVI92 says:

    Hai,
    I had filed annual IT returns during July 2013 and had claimed a refund of Rs.11870/-. Now I have received an Intimation under section 245 of Income Tax Act, 1961 informing the Refund determined during processing is being adjusted against the outstanding demands for AY 2010 – 11. During this AY I had not claimed any refund and the tax was deducted by my employer (which was Rs.13318) as per my earnings. As per Form No.16 furnished by my employer, my IT returns for the said AY was filed during July 22, 2010. The demand raised date by IT Dept as per the intimation is July 22, 2011. I have been asked to contact my Jurisdictional AO for any clarifications / rectifications with respect to outstanding demands.

    Kindly advice what is the further course of action available for me.
    Thanks & Regards, RAVI

    • Nithin Kamath says:

      Ravi,

      Looks like back in 2010 TDS which was supposed to have been paid by the deductor(your employer) is not paid. This default on part of the employer, you will not be able to rectify now.

      But if you have the physical copy of the Form 16 certificate you can go to AO and submit the same.

      But it is a common practice of the IT department to adjust the refund with any outstanding demands.

    • RAVI92 says:

      Hai,

      Thanks for your reply. My employer commensurate with my earning (salary) had effected the TDS @ Rs.13,318 and the same has been remitted. Even the Form No.16 issued also indicates the deducted amount of Rs.13,318/- and the same is confirmed with the 26AS for the AY 2010-11. As suggested I will go to AO and submit the physical copy of Form 16.

      Any other formality / procedure to be followed.
      Thanks & Regards, RAVI

  26. RAVI92 says:

    Hai,

    Thanks for your reply. My employer commensurate with my earning (salary) had effected the TDS @ Rs.13,318 and the same has been remitted. Even the Form No.16 issued also indicates the deducted amount of Rs.13,318/- and the same is confirmed with the 26AS for the AY 2010-11. As suggested I will go to AO and submit the physical copy of Form 16.

    Any other formality / procedure to be followed.
    Thanks & Regards, RAVI

  27. Alok says:

    Dear Zerodha,

    Please publish a list of tax saving investment product, only summary with different lock in period. Like Insurance, FD, Bond, Saving Certificate etc. also availability online offline etc. Thanks

  28. Nikhil Jain says:

    Hi,

    I got profit and losses in F&O section. In total, I have around 20k Loss with turnover of about 6 Lakhs. Do I still need to get my books audited? I mean I do not have any profit. Is it still required to pay income tax (on loss). Is it mandatory to show the losses in ITR form? If I do not show, will I get the notice?

    Now, u told that, if u get a income tax notice, you have to pay 8% of turnover. Now, I do not understand that I did not make profit I F&O, but still I need to pay 8% of 6 lakhs which is 48000. This much is penalty or what? Why one has to pay this even if he is in loss?

    Please reply sir.

    Thanks
    Nikhil

    • Hi Nikhil,

      IT department considers trading in F&O as a business, in a business you have to file your returns irrespective of whether you make profits or not. Do you need your books audited?

      1. If your turnover is over Rs 1crore, every business needs to have their books audited, including the people who trade F&O

      2. This weird rule where certain businesses including trading in F&O has been included. So if your profit less than 8% of turnover, even those have to be audited.

      The penalty is not 8%, what I meant was that IT department could consider your profit as 8% of your turnover, in your case around Rs 48,000 and then you would have to add this to your income/salary and pay taxes according to that slab.

      But if you see, I have used words like “would” “could”, because no one has complete clarity on this, and only a small portion of traders have received notices. In the markets if you are an active trader, it is according to us a good practice to have your books audited from the start, but you can have a word with your CA on this as well.

  29. Mayank Pandit says:

    I have a net loss from my business ( not from shares) and have filed return using ITR 5. I also have no income transaction whatsoever. Do I still need to audit my books of accounts to claim net loss against any future profit from the business? Please advise. Thank you

    • Mayank, We are limiting our discussions here to trading in the markets only.. whatever little knowledge I have, if you are in the construction business, I guess you would have to get the books audited, but otherwise audit required only for turnover above 1crore. Do speak to a CA about this..

  30. Prashanth says:

    Hi.. Any CAs here who can help me in having the audit of my trading account for the last year. I had one of my associate who filled ITR-4 on the last day of filing (05-Aug-2013). Also he has wrongly mentioned the lesser amount as loss. So need to revise the ITR-4 and submit correctly. If any CAs here can help me pls..

  31. Prashanth says:

    I am following up with my associate who filed the ITR-4, but he is not responding. Also he was not aware of the process due to which in AY-2011-2012 he ended up filing ITR-2. This time I had shared the document from Z-connect on topic of ‘taxation simplified’ due to which he filed ITR-4..

  32. Hello Nithin

    First I would like to thank you for helping out so many people. You are doing a great job.
    I am a CA Final student and I used to do trading in shares. I did a lot of research on filing return for F&O but no article is so clear and gives proper solution but your article is best among all. Many CA’s are not aware about this and I am in a big confusion now please help me out.

    I filed my returns for F.Y. 11-12 showing my F&O loss as business loss (No account case). I also had other income. I got notice u/s 139(9) and the reason mentioned was

    1. Where assessee furnish total of amount deducted in Sl.no.2,3,4 and 5 of Schedule BP should be
    consistent with Total credits in the P and L Slno.5
    2. Assessee entering negative amount in gross profit or net profit.

    I filed a return in response to this notice in which I removed negative figure from 51(d) Net Profit. My loss was mentioned in Schedule BP.

    After this I received a demand notice in which my Business loss i.e F&O loss was not considered against my other income. I filed Rectification Request stating my current year business loss was not considered.

    I received a notice against this which says

    THE ASSESSEE HAS NOT FILLED THE RELEVANT DETAILS, IN THE RESPECTIVE SHEDULES.
    HOWEVER, IN SCH.PART – B – TI, THE ASSESSEE HAS CLAIMED SET OFF OF CURRENT YEAR LOSS. FOR EXAMPLE. IT IS SEEN THAT THE ASSESSEE HAS NOT
    FILLED THE SCH. P & L, HOWEVER THERE IS A CLAIM OF CURRENT YEAR BUSINESS LOSS.

    I am badly confused what should I do. Nowhere in IT notice anything like requirement of Audit is mentioned.
    The question is can I fill up the details in schedule and again file a rectification request (as stated in notice) OR should I show loss u/s 44AD and get books audited.
    Since its a case related to F.Y. 11-12 will I be charged any penalty for not getting books audited till now.

    If there is any other solution please let me know.

    This is such a pain for traders having small turnover and losses. We are suffering for no reason, despite having losses we are made to do all this.

    • Suraj Singh
      Submitted on 2014/02/12 at 4:51 pm
      ONE MORE THING WHICH I CAME ACROSS AND WOULD LIKE TO SHARE IS

      SECTION 44AB STATES 2 CONDITION TO BE SATISFIED IN ORDER TO GET THE ACCOUNTS AUDITED BY CA:

      1. IF THE ASSESSEE CLAIMS THAT HIS INCOME IS LOWER THAN THE INCOME DEEMED UNDER SECTION 44AD AND

      2. THE ASSESSEE TOTAL INCOME IS CHARGEABLE TO TAX

      SINCE CONDITION 2 IS NOT SATISFIED IN MY CASE AUDIT IS NOT REQUIRED TO BE DONE.

      JUST WANT TO KNOW UR VIEWS ON THIS

      • Suraj,

        The thing to do now would be to file again, but this time with your proper P&L,and don’t choose the ” No account” option. You cannot get the books audited now, so you will get a demand. Once you have the demand, you can then contest at the assessing officer level, that you are not required to have your books audited as per the points mentioned by you under 44AB. But it depends on the demand you get, if it is a small one, I guess it will be best to pay it off, as this could be a lengthy process contesting with the local AO (Assessing officer).

        Hope this helps.

        Cheers,

        • Suraj Singh (@suraj_22)

          Am confused with ITR-4. Can you elaborate what all things to be filled up in ITR-4. How do I show my loss and turnover (since it is Profit + Loss) . What details is to be filled up for Profit & Loss. Should I select my case as u/s 44AD.

          Why will I get a demand ??

          Thanks & Regards
          Suraj

          • Suraj Singh (@suraj_22)

            One more doubt that I have is why cant I select NO ACCOUNT CASE.

          • Suraj,
            Turnover is required only to ascertain if you need audit or not. Since ITR4 is generic, one of the ways is to show all profits as sales, and all losses as purchases on ITR4.
            What I meant to say was that there could be a demand from the IT department.
            If you select a no account case, you will have to show profits of atleast 8% of your turnover (in case your turnover is lesser than 1 crore).

            Hopefully this clarifies,

            Note: It is better if you just reply back to the same thread, rather than posting a new comment.

            Cheers,

    • Raj says:

      Suraj Singh, what happened to your case. Very interesting to know.

  33. Rajesh says:

    I am salaried person, but I made several intraday trades with turnover(profit+loss) of 26 lacs. I made net 9 lacs loss, will I be needed to do tax audit and maintain books of Account (even if I ma not doing any FNO) ?

  34. Rajesh says:

    Also please let me know what should be “Nature of Business” code ? if not doing any real business, but done some intraday(CASH) no delivery trading. I don’t want to be under 8% presumptive profit audit.

    • Intraday cash is considered as speculative income, so you don’t really need to show it as a business income. Since it is not a business income, you don’t have to worry about the 8% rule, but don’t forget to file your returns.

      • Rajesh says:

        Thank you so much Nitinsaheb for relieving my worries. Now only thing is what should be “Nature of business” code for such deemed business activity in ITR4 “Trading -others 0204” or “Financial services -others 0809”

        • Rajesh says:

          Awaiting reply, it would help many people.

          What should be “Nature of business” code for such deemed business activity in ITR4 “Trading -others 0204″ or “Financial services -others 0809″

          if ITR4 is not required for such activity then they would fill ITR2.

  35. Dhaval Patel says:

    Hi,
    Actually thing is like i have filed return for AY 2013-14 and Paid tax what i have to paid within due date. Now, I have received defective notice for AY 2013-14 under sec. 139(9) and for that i have submitted return against that defective notice, but unfortunately i forgot to mention the details of tax which i have already paid for AY 2013-14 in that return and without that information i have uploaded XML file for 139(9). So, I would like to know that what would be the consequence of that incorrect return filed against sec. 139(9)???

  36. Dhaval Patel says:

    Mr. Nithin Thx for your comment but i am not able to upload correct XML file again and i have made call IT dept through toll free number and he told me that u can not upload XML file again and IT department will evaluation the file and if there is any problem then they would ask for rectification through demand. What does the mean?
    As you told that i can rectify the error and file the XML again.. How would it possible ????because onlineefiling site does not permit me to upload file again under 139(9) for same financial year.
    please suggest me the other alternative to rectify that error if available.

    • In response to Notice 139(9), you can file new XML, but don’t forget to put CPC Communication Reference Number and the CPC Pin number which will be part of the Notice. You should be able to file after this. The process is completely system driven, so any mismatch it wont accept.

      If you are not able to file within the time given in the Notice, then the It return filed will be rejected and you will have to file fresh returns which again can add up interest for delayed filing of any tax dues. I’d suggest you to consult a CA, who can help you in doing the same, should be pretty simple for him.

  37. raj says:

    sorry for out of context question…. where do we receive these “Notice under Section 139(9)”…?
    Do they send to the address associated with PAN CARD or to the address associated with trading account or in any other format (email/..) ?

  38. Rajesh says:

    Hi Nitin,

    Thank for your valuable information you are providing.

    I filled up ITR4 for Intraday cash only (no FNO) and made entries only in

    51a- Gross Reciepts, -(here I put total of loss+profit trade wise)
    51b- Gross Profit -(here I put -ve value for loss),
    51c- Expenses -left Blank (as Intraday cash no business expenses allowed).
    51d -Net Profit – auto calculated as loss

    In schedule BP – I mention -ve value in A-1 and A-2i fields.

    Now I have got 139(9) notice with

    error code 14 ( saying -ve entry in 51b gross profit and asking to fill up all of 51a to d) and
    error code 23 (saying “Where assessee furnish total of amount deducted in Sl.no.2,3,4 and 5 of Schedule BP should be consistent with Total credits in the P and L Slno.5)

    Please help.

    • Rajesh, Check this post.

      This is because if your turnover is less than 1 crore and if profit less than 8% of your turnover, you need to get the books audited by a CA. It is a weird regulation and we have put a petition to the IT department saying it is illogical, but until there is an amendment we will have to adhere.

  39. Rajesh says:

    So there is no longer distinction between Intraday- Equity (speculative) and Trading in F&O (Non-speculative) business as far as Audit is concerned. That means Books have to be kept for audit.

    Does this also mean that any loss in Intraday-Equity can be set off against other business incomes except (salary) just like it is done for F&O trading ? This will be good news for all Intraday-Equity traders.

  40. Hari says:

    Dear Zerodha / Nitin,

    First of all, Greatly Appreciate your efforts here in helping clients deal with this tax filing complications.
    I received u/s 139/(9) with error code 14 and 23 for AY 2013-14. I made F&O losses and as per the rules i understand i have to get my books audited. I consulted an auditor and he says minimum fee is around 25K to 35K for preparing book of accounts and complete the audit, also it would take close to 10 days.Already 1 week of the notice period(15 days deadline) is gone. Instead I feel that if I show 8%(64K) profit on turnover(profit+loss = 8L) and reupload the ITR4 under 139/9 rectification I will be paying 20% to 30% on 64K as per my tax slab which would be 13K to 18K (lesser than auditor fee) . Or should i just ignore this and let the tax filing go invalid and file a ITR-2 and forego my business (F&O) losses without carrying it forward for next 7-8 years for offseting future business profits.

    Please suggest if the options that I am looking at(paying tax on 8% of turnover or filing an ITR 2) are right and will not create future problems from IT Dept. Running behind CAs is not helping and I want close this before the deadline of 15 days.This rule is really a great pain in addition to the incurred losses 🙁

    Regards,
    Hari

    • Hari,

      firstly, it is important to file your returns either profits or losses. If you don’t file your losses, IT department might come back with a penalty based on the turnover.

      My advice would be to refile using ITR 4S and pay 8% of your turnover as presumptive income and avoid the audit.

      • Hari says:

        Hi Nithin,

        Should i refile using ITR 4S after 15 days (once the 139/(9) that i received for ITR4 expires) ?

        Or can i respond to this 139/(9)with ITR 4S ?is it OK to respond with a different ITR form for 139/(9)?

        Also in future should I continue with ITR 4S as long as turnover remains below 60 Lakh? and show 8% profit to avoid audit in case i incurred loss or less than 8% profit of the turnover during that FY? and how will the additional tax amount has to be paid . I am salaried and usually my employer deducts TDS and i used to get few thousands refund due to other expemtions that i file using ITR 2 . This is the first time that i might have to pay additional tax outside TDS and would like to know how it would be paid to IT department?

        Regards,
        Hari

        • You should ideally file within the 15 days and you can respond with an ITR 4S.

          What you do in future will be your call, but yeah if your turnover is less than 1 crore, profit less than 8% and if you want to avoid an audit, use ITR 4S. I’d suggest you to meet a CA who can help you file these returns.

  41. Pranay says:

    Hi Nitin,

    I really appreciate the great work you are doing by helping investors/traders in complex taxation matters relating to trading/investment in shares. I request you to clarify following points:-

    1) I am a salaried individual and have traded shares ( short term and intraday, no F&O) in FY14, Do I need to file ITR-2 or ITR4. What happens when somebody files ITR2 when he is required to file ITR4.

    2) I also trade in demat account on my wife’s name (housewife). Is it possible to declare combined income including that of spouse in ITR2/ITR4. This will make life easier and will not require auditing of two accounts by CA (in case of ITR4)

    3) Can I carry forward losses from ITR2 filed in preivous financial year to ITR4 required to be filed next year.

    Regards
    Pranay

    • 1. Since you have done intraday trading(considered as speculative business), you have to use ITR4. If you use ITR2 instead of ITR4, you might get a notice from the IT department asking to rectify and also might lead to a penalty.

      2. No you cannot combine your wife’s, you will have to declare that separately. But if you intend to do this check out creating a HUF. http://tradingqna.com/2760/what-what-advantages-opening-trading-demat-account-which-huf

      3. No, you cannot carry forward losses from ITR2 to ITR4.

      • Pranay says:

        Thanks Nitin. Kindly provide few more clarifications. I would be consulting a CA also but I want to have my basic understandings right.

        1) From the discussions above I understand that trading turnover is sum of abstract value of profit and losses. Since I traded frequently my turnover would be about Rs. 25 lakhs while I made a net loss of Rs. 2.5 lakhs. Please clarify whether deduction of business expenses is allowed from the turnover or net profit/loss. Considering a business expense of Rs 2 lakhs my taxable income would be Rs 23 lakhs ( this would be sort of imaginary income) in first case and (-) 4.5 lakhs in second case (meaning zero tax)

        2) In Jan 14 my wife transferred shares worth Rs. 4 lakhs from her demat account to mine. Will it be taxable.

        3) A layman’s question in the end : Is tax audit and book audit ( as required as per sec 44 AD) same for share trading business.

        Regards
        Pranay

        • 1. Pranay, firstly if you have a salary income, it cannot be adjusted with your business losses (trading losses). Business losses can be adjusted only against business profits, either now or anytime if you declare in the next 8 years.

          Your turnover is 25lks and net loss is 4.5lks ( 2.5lks + 2lks in expense, because your net loss is after adding your expenses, you can’t reduce expense from turnover).

          Since your profits are less than 8% of your turnover (note that turnover is only used to determine if you need tax audit or not, taxes are paid on profit and not on losses), you will need a tax/book audit( both are the same as required per 44AD).

          If you want to avoid the audit, the other option would be to declare presumptive income using ITR 4S, 8% of your turnover( 25lks) that is Rs 2lks as your profit and pay taxes on this Rs 2lks after adding to any other income of yours.

          NO need to pay taxes if wife has transferred you shares.

  42. kvj says:

    Hi

    I was filling ITR2 since some years and for AY 2012-13 and AY2013-2014 it was filled online and the capital loss form old years is carried out but some how the CA person filled loss as profit and I got a demand of 30K , rectification is filed but got a mail from CPC that to contact
    “In case of any clarificatons/discrepancies with respect to the outstanding demands mentioned, kindly contact your jurisdictional
    Assessing Officer with in 15 days, as CPC will not be able to carry out any modification/rectificaton with respect to these demands.”

    I Am out side India now , what is the best way to handle this

    • hmmm.. I guess you will have to appoint someone to represent you who can get in touch with the assessing officer, it is best to use the CA itself who filed your returns.

  43. […] *There has been a sudden rush of notices that traders have received from the income tax department recently, if you are one of them do read this blog ” Notice under Section 139(9)?  – Possible Reason”.  […]

  44. Rohit says:

    Dear Nithin,

    I am a salaried class person and do intraday trading (cash segment only). For the AY 2013-14 i had filed ITR4 as apart from salary, I had intraday loss oh RS 5900. The total turnover was less than Rs 50,000. In ITR4, I had shown net loss of Rs 5900 in schedule PL(51d – No accounts maintained) and shown it as a speculative loss.
    Now, I have received 139(9), for AY 2013-14 stating error 14 (Assessee entering negative amount in gross profit or net profit.) and error 23 ( Where assessee furnish total of amount deducted in Sl.no.2,3,4 and 5 of Schedule BP should be consistent with Total credits in the P and L Slno.5).

    Please guide for the way forward.

    Regards

    • This like I have stated is because you need an audit of your books by a CA, (since profitability is less than 8% of your turnover). So best to consult a CA for this.

      • Rohit says:

        Thanks for the quick reply nithin.
        Two add-on questions:
        1. What would be the nature of business in ITR 4?
        2. From this year onwards, if the intraday trading is only for cash segment, can I file ITR2 instead of ITR4(I dont need to carry forward the loss)?

        • 1. The code for nature of business is 0204 on ITR4
          2. If you are trading intraday equity, it is still considered as a business and will require you to use either ITR4 or ITR4S

  45. Anand Sanga says:

    I have profits in Delivery Trading and Losses in Intraday Trading, which is higher than profits in Delivery Trading. Total turnover is below Rs.1 Crore.
    It is understood that audit is compulsory to carry forward the intraday losses.
    If i file ITR4S can we carry forward the intraday losses.
    What is the difference between ITR4S and ITR4.

    • No you cannot carry forward losses with ITR 4S. With ITR 4S, you can file with presumptive income, so if you have turnover of 10lks and you have made a loss, you show your income as 80k (8%) and hence not require an audit from a CA. If you are using ITR 4, you can show the loss and carry forward, but needs an audit.

      • Anand Sanga says:

        Thanks Nithin. This section 44AD is becoming a ghost for small investors/traders. I think because of this small investors/traders may avoid disclosing their transactions.

  46. Anand Sanga says:

    Another query, if we take CA certificate and file ITR4 showing speculative loss. Will be this speculative loss can be adjusted against the Delivery Profit in next year.

  47. gandhi says:

    With ref to notice under section 139 (9), audit requirement is triggered because f&o trader has reported profit less than 8% of turnover. Now to rectify it, instead of getting the books audited can he simply revise the return with 8% profit on turnover.

  48. Mark says:

    Hi Zerodha,

    Thank you for your efforts.

    I do F&O trading and I have profits in excess of 8% on my turnover and I have already filed my returns.

    After filing my returns, I realized that I have not mentioned my F&O turnover (gross receipts in column 53a in ITR4) in my tax returns. I only mentioned my profits (column 53b).

    Is it alright or will I need to revise my returns to avoid a notice?

    Any help will be appreciated.

  49. Raj says:

    Nithin an important part of the information you have been giving is wrong!

    Please refer this link, especially the example 1 and 2 given in the last part.
    http://www.simpletaxindia.net/2013/08/tax-audit-mandatory-if-turnover-of.html

    If a person’s total income is below taxable limit (i.e. if his income is less than 2 lacs) and he made a loss in F&O, he does not need to get his book audited. He will not receive any notice under section 139(9). Section 44AD under which notices are sent is applicable only and only if total income is greater than the maximum amount that is not chargeable to income tax, which is 2 lacs for FY 2013-2014.

    1) So, for example if a housewife trades with zerodha, has a 20,000 loss on a turnover of 10 lacs, she can just file using ITR4 claiming a loss of 20,000, without the need for an audit. She will not receive any notice from IT department. No need to say you made a 8% profit.

    2) If a salaried person trades and his total income from salary is 1.8 lacs (@ 15,000 per month) and he makes a profit of 10,000. His total income now is 1.9 lacs. He does not need audit as his total income from all sources is below 2lacs.

    Audit is only required when your total income is greater than 2 lacs.

    I think this is an extremely important information and should be communicated to all your clients. This will save at least some clients the headache and expenses of getting a tax audit. With Thanks.

    • Yes Raj, makes sense, I will probably put this up on the blog itself. If gross total income itself is less than 2lks, in that case no audit is required even if profit is less than 8% of turnover.

      Cheers,

      • Raj says:

        Thanks Nithin, I have seen you have modified the blog. Great!

        I have one more request. You should give one example of how to file ITR4 on your blog. Either one article can cover everything or you can have 3-4 articles covering balance sheet, PL, different schedules etc. I understand that article will be long and complex, as ITR4 itself is 30 pages but it will help so many people so much. In addition to benefiting your clients, it will also act as a “unique” page on google search engine and will drive traffic to your blog. Since no such articles exist on internet today, anyone searching for ITR4 and how to fill it, will find that article and land up on your blog. Some of them will convert and become your clients. Cheers!

  50. Raj says:

    Good article – clearly explains – supports my research when your total income is below 2,00,000
    http://www.caclubindia.com/articles/some-lights-on-sec-44aa-44ab-44ad–17846.asp#.U9RD5uNdWSo

  51. Prasanna says:

    Hello Nithin,

    If I have Options income from NYSE trading (non-margin only), do I have to file it as speculative income or regular income from business? I guess this doesn’t get benefit of the section 43(5) since the exchange is not one of those in India.

    Please advise

    Thanks
    Prasanna

    • Prasanna, if these options trade were taken to hedge your long equity positions on NYSE, then it can be shown as business otherwise yeah you will have to show it as a speculative income.

  52. AKSHAY GOVEKAR says:

    44AA: MAINTENANCE OF BOOKS OF ACCOUNTS

    WHO SHOULD MAINTAIN:

    a. If a person carrying on business / profession and income from such business/ profession has exceeded 1,20,000 in any of the three p.y. or current p.y. (for newly set up business)

    b. If turnover / gross receipts has exceeded Rs 10 lacks in any of the three p.y. or current p.y. (for newly set up business)

    For business set up in p.y.12-13 and during that year turnover has exceeded 10 lacks or income has exceeded 1,20,000, a person should maintain books of accounts.

    Other cases: If turnover or income has exceeded those limits in p.y. 09-10 or 10-11 or 11-12, a person should maintain books of accounts.

    Note: limits of 1,20,000 should be increased to 1,50,000 for professions notified in rule 6f.

    Where assessee is showing profit under presumptive taxation u/s 44AA, 44BB, 44BBB, he is showing lower profit than prescribed in those sections .

    Where assessee is showing profit under presumptive taxation u/s 44AD , he is showing lower profit than prescribed in that section and DURING THAT PREVIOUS YEAR HIS INCOME EXCEEDED THE BASIC EXEMPTION LIMIT.

    So if assessee has income lower than basic exemption limit or loss , he can show profit less than 8% without maintaining books of accounts.

    BOOKS TO BE MAINTAINED:

    • Cash book

    • Ledger

    • Journal

    • Bills of income for amounts exceeding Rs. 25

    • Bills of exp for amounts exceeding Rs. 50

    • Medical practitioner should maintain daily cash register and inventory record .

    THE BOOKS SHOULD BE MAINTAIN FOR A PERIOD OF SIX YEARS FROM THE END OF THE ASSESSMENT YEAR OR IF THERE IS REASSESSMENT, UNTIL COMPLETION OF RE ASSESSMENT.

    Sec 44 AB : AUDIT OF ACCOUNTS

    WHO HAVE TO MAKE HIS ACCOUNT AUDITED?

    • Person carrying on business and total sales, turnover or receipts has exceeded 1 crore rs. In p.y.

    • Person carrying on profession and gross receipts has exceeded 25 lacks rupees in previous year

    • Where assessee is showing profit under presumptive taxation u/s 44AA, 44BB, 44BBB, he is showing lower profit than prescribed in those sections .

    • Where assessee is showing profit under presumptive taxation u/s 44AD, he is showing lower profit than prescribed in that section and DURING THAT PREVIOUS YEAR HIS INCOME EXCEEDED THE BASIC EXEMPTION LIMIT.

    So if assessee has income lower than basic exemption limit or loss , he can show profit less than 8% without making his account audited.

    HOW TO CALCULATE TURNOVER:

    When 2 business: clubbed the income of both business

    When 1 business and 1 profession: get the account audited if turnover of the business exceeds 1 crore or receipt of the profession exceed 25 lacks.

    Note: Receipt should be from business or profession and not from the sale of fixed assets. While calculating turnover for agents, consider only commission charges.

    In calculating turnover u/s 44AA and 44AB, turnover u/s 44AE shall be excluded.

    LAST DATE FOR AUDIT IS 30 SEPTEMBER.

    PENALTY: Non compliance will attract penalty of half percent of turnover or 1,50,000 whichever is lower.

    SEC 44AD: PRESUMPTIVE TAXATION

    • It is only for individual, HUF and firm (not LLP) Carrying on business except business u/s 44AE.

    • ASSESSEE ‘s gross receipt should not exceed 1 crore.

    • Assessee can declare 8% or higher sum of his gross receipt as his income under this section and he has no need to maintain accounts or get the accounts audited.

    • So it assessee is declaring lower income than 8% and his total income exceeded basic exemption limit , he should get his accounts audited by CA u/s 44AB.

    • Advance tax provision is not applicable to the assessee following sec 44AD.

    • ASSESSEE cannot get deduction u/s 10AA AND business related deduction of chapter 6A. He can get deduction u/s 80c to 80G.

    • All deduction u/s 30 to 38 and depreciation shall be deemed to have been allowed.

    • Written down value of assets shall be calcul

  53. AKSHAY GOVEKAR says:

    SEC 44AD: PRESUMPTIVE TAXATION

    • It is only for individual, HUF and firm (not LLP) Carrying on business except business u/s 44AE.

    • ASSESSEE ‘s gross receipt should not exceed 1 crore.

    • Assessee can declare 8% or higher sum of his gross receipt as his income under this section and he has no need to maintain accounts or get the accounts audited.

    • So it assessee is declaring lower income than 8% and his total income exceeded basic exemption limit , he should get his accounts audited by CA u/s 44AB.

    • Advance tax provision is not applicable to the assessee following sec 44AD.

    • ASSESSEE cannot get deduction u/s 10AA AND business related deduction of chapter 6A. He can get deduction u/s 80c to 80G.

    • All deduction u/s 30 to 38 and depreciation shall be deemed to have been allowed.

    • Written down value of assets shall be calculated as if the depreciation has been actually allowed.

    • SALARY AND INTEREST of the partners are to be allowed after calculating profit under this section.

    • If any material supplied by buyer, it will not be form part of gross receipt.

    • Assessee cannot carry forward unabsorbed depreciation or business loss.

    • This section is not applicable to business man earning commission income or agency income.

    I have tried to cover main points. I hope it will be helpful for beginners.

    Thanks for reading

    CA Tarannum Khatri

    Source : research on the sections
    Views : 30390

    Other Articles by CA Tarannum Khatri

  54. Mungerilal says:

    “If your turnover is less than 1 crore and profit more than 8%, you will not need your books to be audited.”

    profit more than 8% means what? 8% profit on that 1 Crore turnover which is 8lakhs,right?

    Then how we pay taxex if the books not audited? (I’m novice F&O Trader Nithin Sir)

    • Books being audited means, you will need a CA putting his signature on your balance sheet saying that he has checked and vouches that your returns are correct. To pay taxes books need not be audited, all you have to do is show all your income, reduce all your expenses and then pay taxes as per the slab you fall in. Check this post.

  55. Anirban says:

    just want to clarify, do people who only do intra-day trading in the equity segment ( No Futures and Options) have to get their account audited? Say the annual turnover from only intraday equity trading if 30 lakhs ( sum of profits + losses) and gain is 2 lakhs , will the books have to get audited ?

    • Intraday trading in equity is considered speculative and also as a business. If this 2lks is your only income, there is no need of getting audited as you don’t fall under any tax slabs. But if you have other income (salary/business) that will need to get added to it and if either turnover is over Rs 1 crore or if your income is less than 8% of your turnover, you will need an audit.

  56. Anirban says:

    so you mean for a trader having more sources of income is advantageous as income from other sources can take the profit to an figure which is more than 8% of the turnover.
    now suppose my turnover is 10 lac and loss is 30000 (intraday)
    from some other activity i earn 3 lac
    so my net turnover still remains 10 Lac and my profit becomes 2 lac 70 thousand
    which is more than 8% of 10 lac, so no audit

    • If your other income (business/profession) is 3lks, firstly that will also have a turnover based on which you generated this income. But yes, if your profit >8% of both the turnovers combined, no need of audit.

  57. Praveen says:

    Sir for F& O turnover is ok i understand but wat is Purchase price
    loss 100000
    Profit 20000
    net loss=-80000

    if 100000+20000=120000 is turnover
    so wat is the purchase how i got loss figure

    • Didn’t get your question? Your turnover is 1.2lks and loss is 80k. Since your profit is less than 8% of your turnover, you will need the books audited, that is only if your net income is less than Rs 2lks.

  58. Sudipta Kr Ghosal says:

    I received an “139(9) defective return notice” for AY 2013-14. My employer had deducted Rs. 8,867 and Rs. 531 additional tax had been paid by me through 280 bank challan. In addition, I filled up corrected return which was uploaded on 30/04/2014. But, I have not received any intimation and the same defective notice is received on 28/10/2014. It has been observed that some interest calculation (around Rs. 75) has been done on the additional tax and due to which I paid an additional tax of Rs. 100. Now, how can I filled up the form? Will I fill up a revised return or original return? Please help me…and guide me the steps….

    • Yes Sudipta, you will have to rectify this defect and file your returns again within the stipulated date on the notice. This is called Rectifying.

      Revising a return, is when you rectify on your own without receiving the notice.

  59. Nitesh sharma says:

    Hi Nithin,

    IS it mandatory to get the tax filed only trough CA or we can do the same trough some of the online sites like taxspanner.com also i have never filed tax return and last few years in net have made losses only so is there any way to file the late tax or something

  60. Bhavin Mehta says:

    Hi,
    My view on above matter is –
    As per section 44AB r/w section 44AD, where turnover is less than Rs 1 crore, audit is required when profits shown are less than 8% of the gross receipts or turnover and the income exceeds maximum amount not chargeable to tax.
    In case of loss the income does not exceed maximum amount not chargeable to tax and hence audit is not required.

  61. Monu Mathur says:

    Hi All,
    I have received notice under 139(9) for rectification.
    I am a salaried employee, for last year assessment I had two form 16 from my previous company and from my current company.
    When I filed ITR and got some positive amount in payable with that Payable amount balance I have submitted my ITR.
    Now I have two question
    1. When I am salaried employee and my tax already has been deducted from source side, then how it could be possible payable comes as positive amount. I can guess because of salary increment there are some amount need to pay.
    2. If I want to pay payable online then how to pay… what chalan should I select, what TAN previous company or current company after payment then how to upload the xml finalise everything

    I will be highly obliged and thankful for kind helpme

    • Hi Monu,

      Ideally you would have had to combine both the form 16 and paid taxes accordingly. It is possible that when you combine both the Form 16, your tax slab changes. You need to use Challan 260 and you can file using your PAN (u will not need the TAN of your previous company).

  62. Ashish Khandelwal says:

    Thanks Nithin for great article,

    Can you please help me as I get notice u/s139(9). I did intraday trading.

    For computing turnover we will take intraday profit/loss or tradewise profit/loss ?

    My Intraday profit/loss was 46000 so if instead of auditing books i presume 8% income i.e. approx 4000 and tax would be around $400. Does that resolve my issue. or i need to get audited books of account

    Please advice

    • Yes Ashish, you can just declare 8% of your turnover as profits and get away from need of doing the audit.

      • Ashish Khandelwal says:

        Thanks Nithin,

        Can you please confirm whether i need to consider intraday profit/loss or trade wise profit/loss while computing turnover

        • This is up for debate, :). I personally would follow contract/scripwise profit and loss. Take the gross sum of all of this as turnover in case of intraday trrading. So if total 200 loss trading reliance, and 500 profit trading tata steel, turnover is 700.

  63. Rupak says:

    Hi Sir,

    Kindly help me out of it:

    Assessee having his salary income: 4640373
    Profit from trading in F & O: 8019
    lOSS FROM TRADING IN F & O: 65687

    As F& O trading are to be treated as PGBP Income, I have shown the the above amount in the case as where the regular books of account are not maintained as below:

    Gross receipt: 8019
    Gross profit: 8019
    Expenses: 65687
    net profit: -57668

    I got a notice under 139(9) of IT act regarding the return to be considered as defective return.
    I however tried again to file the return u/s 139(9) from the site, it is displaying that ” In no account case, gross profit/Net profit cannot be negative’.

    Kindly suggest me what the issue is?? The negative figure comes automatically as expenses>income in F&O.

    • Rupak, your turnover is 8019+65687 = around 75000. Your loss is 57k. Since your profit is less than 8% of the turnover, section 44 AD requires you to get the books audited. So you can’t file it as a no account case.
      This is a ridiculous rule, and we have taken out a petition on this: https://www.change.org/p/minister-of-finance-exclude-business-of-trading-in-securities-and-derivatives-from-section-44ad

      There are two things you can do, either get a tax audit done, or declare 8% of your turnover as profit. So 8% of 75 is around 7000. So you end up paying 30% or Rs 2100 as taxes (since you are in the highest slab). Rs 2100 will still be quite cheap compared to the audit cost. But you will not get the benefit of carry forwarding your losses.

      • Siddharth Sahu says:

        Dear Sir,
        Thank you so much for informative article on how to sort out issues in response to notice u/s 139(9) in relation to f&O transactions . In the above case as suggested by you either we can declare 8% of turnover as profit & pay tax or get the books audited.In the above case I would like to know if I opt to get the books of account audited then my turnover will be 75000 which I can show in gross receipts in ITR 4.To derive at loss of 57000 I want to know what will be my purchase value which I will show in ITR 4.

        Kindly help me on this issue.

        • In the new ITR 4 there is a section called Others -“Part A – P&L and ROW 1 A 111”. You can define your own nomenclature here.

          Otherwise generally all positive turnover (profits) is shown under receipts, and all negative turnover (losses) are shown under purchases.

  64. Rupak says:

    Hi Sir,

    Kindly help in above Query.

  65. Rupak says:

    Thanks Nitin sir for your help…. 🙂

  66. Darsh says:

    Hi,

    In case of an assessee,a belated return has been filed and same income is considered twice for tax purposes.Also the return has been submitted with payment of taxes only once on an income.Now notice u/s 139(9) for defective return is received.Kindly help what can be done in such a case.

    • Darsh, you have to rectify the return and file it again. In case they don’t accept the rectification, your file will be handed over to an assessing officer. You will then have to give him an explanation of this.

  67. AKSHAY SHETTY says:

    Hi Sir,
    Actually, my problem is that there is a client who has received a notice from the income tax department u/s 139(9) with error codes 14 (Assessee entering negative amount in gross profit or net profit.) and error 23 ( Where assessee furnish total of amount deducted in Sl.no.2,3,4 and 5 of Schedule BP should be consistent with Total credits in the P and L Slno.5). I have read some of your discussions above in which you have said that the way to rectify is by showing profit @ 8% of turnover u/s 44AD but the above clients have a business of F&O whereas my clients business is software consultancy. Now, please advice us as how to proceed with the same. (for the 15 days to end only 3 days are left so i request you to tell the correct way to rectify the above)

    Regards,
    Akshay

    • Akshay, Software consultancy according to me would come under the professions head, and in which case you will need to get your books audited if turnover is more than 25lks. So the best option is file revised returns and also have the audit done.

  68. mamta says:

    I had f& o loss I filed itr 4 got reply its defective and filed under section 139(9) i got assessment order in that entire business loss of 3.75.lakhs disallowed I haven’t got audit done I had filed 139(9) just putting zero in p& l. What are my options can I revise and do tax audit this pertains to ay 2013-14

    • Mamta, yes you will have to file revised returns, and yes you can also get it audited. Now, the date you submit the revised returns will be considered as the date you filed your returns, so there might be a penalty for delayed filing. Also best if you use a CA for this, they can ensure that everything is done right the first time itself.

  69. LAKSHAY says:

    My only loss is 90,000 and i have no other income . i don’t fall under taxable slab . do i still need to get audited?

  70. vikash says:

    Hi Nithin , Keep up the good work going .. i had a doubt wrt to TO calculations in case of heavy options premium.

    A bit of unique case , I trade in Nifty Deep ITM options mostly and very less futures in involved , So wanted to understand that whether Net pnl arising out of buying / selling 1 option is considered or the entire premium value will be used as turnover figure ( not contract).

    For eg if I buy 40 lots Nifty ITM option (say 7500 CE strike) at say 1000 rs and then sell at 1100, my profit would be 100*1000 = Rs 1,00,000, while the total value of the premium would be (1000*1000)+(1000*1100)=Rs 21,00,000.

    The reason i m asking is , in eod reports the option premium amount is usually clubbed with futures mtm and not shown separately with most brokers

    I am not able to calculate the turnover due to the option premium settlement values…
    Say for eg. my futures mtm (futures net profit) for the entire year is less than 2 lakhs , but options turnover is say 3 cr ( value debit 1.48 cr , value credit 1.52 cr) … options profit 4 L … total profit = 2 + 4 = 6L

    if 8% rule is on premium , then it seems strage when the TO crosses a threshhold of say 2-3 cr , then it is difficult to generate /show 16-24L profits .. else even after auditing u stand a chance to receive a notice from IT dept.

    • vikash says:

      just now saw in ur blog link..
      http://zerodha.com/z-connect/traders-zone/taxation-for-traders/taxation-simplified

      If options is calculated on sell value then it seems very very strange …

      When the TO crosses a threshhold of say 5-10 cr , then it is difficult to generate /show 40-80 L profits .. else even after auditing u stand a chance to receive a notice from IT dept.

      TURNOVER

      Turnover is being calculated here just to determine if you need a tax audit or not

      For F&O — absolute sum of settlement profits & losses for F&O) per scrip and the sell side value of option contracts

      • Vikash, the entire declaring turnover is quite a grey area. Check page 24 on this link, it says that premium received on sale of options to be included in turnover. At Zerodha we have also today released a new report which gives tradewise absolute sum of profits/losses. So it basically adds up absolute sum of all profits and losses of each individual trade you have taken, along with the sell value of options. This is probably the most compliant way of declaring turnover.

  71. PK says:

    Dear Nithin
    no F&O trades and no margin trading. But equity turnover in cash & carry segment more than 1 crore. Does this come under section 139? . Does this requires tax audit report to be filed by CA?

    • PK audit comes into question only if you are trading as a business. If you are investing into the markets, you just have capital gains. You can show this capital gain in ITR2, and there is no question of audit in this case.

  72. Vj says:

    Hi Nithin,

    I have a question with regards to transferring the stocks from Zerodha to Any other DP.

    What is charges involved in it.

    I want few of my stocks transferred to my another account.

    Regards,
    Vijeth

  73. satyasri says:

    Hi Sir,
    We got Intimation u/S 139(9) on Oct 2014.But unfortunately we didn filed defective return in said time of 15days.later we filed return on 30th March 2015.That intimation is for FY 2013-14. Again we received a reminder notice for the same.But in incometaxindiaefiling portal nothing is visible in pending actions section (as we already filed defective return by using pin on 30th March 2015).So how to react on second lntimation letter (reminder).Can u pls help on this issue.

  74. […] an audit done is one of the reasons many people have received notices under section 139 (9). Check this post to know […]

  75. Mungerilal says:

    Sir,I made hardly 20k last year by trading F&O.My turnover is 1.32Lacs showing in Zerodha reports.
    I have No other income source.But I get 50k as a FD interest.So my Income is 20k(from trading)+50k(Bank FD)..
    Do I still need an audit?

    IF yes,how much a CA will charge?

    Thanks

  76. pravin kumar solanki says:

    1-if I have non Zerodha a/c then how I calculate My turn over & profit/loss.
    2-Is any offline software is available in market for Accounting of share trading .
    3-If iam positional trader in cash segment ( not in f&o,option & other derivatives market) & my turn over is >1cr or < 1cr but profit is <8%.Then nessary for me to audit my book.

    • 1. If you are not trading at Zerodha, you will have to download the tradebook onto excel and do this manually.
      2. I remember reading about a couple, but can’t really vouch for it.
      3. You can show your cash segment business under capital gains, if under capital gains there is no need of audit (less than or more than 1 cr or <8%).

  77. SREE says:

    Hi Nithin,

    Sorry for reposting from above ( may be wrong place).

    1. I am a salaried individual and all these years I have had filed my return in ITR-1 or ITR-2 (with Capital gains and other income ( Bank interests).

    2. Last year I have transacted both; few Intraday (cash) and majority of Delivery based Equity shares. Only transacted in shares and NO opt/ fut etc.

    Turnover of Trade- Intraday = Rs.6,600/-

    Trades- Intraday Profit (SCG) = Rs. 4200/- ( rounded off).

    Turnover of Trades- Delivery = 1,25,00,000/- ( rounded off).

    Trades- Delivery P/L = – 4500/- (CG Loss).

    My Salary Income = 5,00, 000/- (Approx)
    ————————————————————————————————————-
    Now, please clarify my situation with regard to Tax Audit.

    P.S.
    I have contacted few of CAs and every one had given me different opinion. It’s confusing, scary, I am in a kind of regrettable situation for involving with share transactions ): Perhaps Mutual funds would have been easier!

    Some say I DO NOT need Tax Audit because I DO NOT fall under category such as Business/ Trade Profession / Company ? They say I would just need to file ITR-2 with Capital Gains (I would be much happier, but scared of any wrong doing?)

    Some say no matter if I am an individual, salaried, part time trader/ investor, since Turnover exceeded 1 Crore , Tax Audit with ITR4 must be the right way to do?

    Very confused and need your assistance on this and guide me/ many who are in similar situation, choosing the right option for filing the income tax.

    Thank you in advance
    sn

    • Because you have transacted on intraday equity which is considered as speculative business, it is mandatory for you to use ITR4. You can show short term capital gain (loss in your case) under capital gains. If you had only capital gains and no intraday trading, you would not have needed ITR4, just an ITR2 would have been enough. There is no need to get ITR2 audited.

      Since your speculative business is a loss (less than 8% of turnover), you will need to get the books audited. But getting books audited is nothing complex, we are putting up a module on Varsity in the next 1 week, which will answer all queries around this. http://zerodha.com/varsity/

      • sreen says:

        Thank your Nithin,

        I certainly follow your suggestion and will be seeking CAs help in this regard. Meanwhile I greatly appreciate your clarification on the speculative trade part;

        My Total Turnover of Intraday trades ( speculative) = Rs.6,600/-

        Trades- Intraday Profit (SCG) = Rs. 4200/-

        This Profit (Rs.4200/-) is much more than 8% (Rs.528) of Total TURNOVER of Speculative/ Intraday trade (Rs. 6,600).

        So, in this case do I still need Tax-Audit and ITR-4?

        ———-

        Apart from above, rest is as follows for your quick view, please.

        Turnover of Trades- Delivery = 1,25,00,000/- ( rounded off).

        Trades- Delivery P/L = – 4500/- (CG Loss).

        My Salary Income = 5,00, 000/- (Approx)

        • Sreen, firstly when you mention intraday profit in brackets you have SCG (i am assuming you mean short term capital gains), this is wrong. Intraday profit is speculative business income.

          But yes if your intraday profit is Rs 4200 and turnover 6600, you don’t need an audit.

  78. sreen says:

    Thanks so much Nitin. You are right that SCG meant for short-term capital.

    And other part:

    Total Turnover of Trades- Delivery = 1,25,00,000/- ( rounded off).

    Total Short Term Capital Gains (SCG) on Trades -Delivery = – 4500/-. LOSS.

    My Salary Income = 5,00, 000/- (Approx).
    ————————–

    One more clarification please:

    With the above scenario, kindly let me know if it is ok to go with ITR2 or ITR4 is still a MUST?

    Sorry to bother you again.

    Kind regards,
    -sn

    • If you don’t have any intraday trading like in this case, only ITR2 is enough.
      In ITR2 there is no option to declare intraday trading which has to be considered as a speculative business hence ITR4.

  79. sreen says:

    and I must confess that your clarifications/ suggestions on this forum on many Tax related issues that faced by novice like me are much more convincing rather thank all those technical jargons / confusing suggestions from different accountants?

    Some were trying to convince me that I better show it as Business and ITR4 so that I can claim expenses such as Advisory fees / Accounts charges/ Assistant salary / Rent, electricity/ internet bills and many more!? All are very appealing, but a bit complex and scary… because starter like me are rarely used to that kind of Business ……… and only used to dabble with Shares now and then online……. thanks are due to wonderful Online discounted Brokerage like yours!!!

    Any query regarding Tax Audit on Google is hitting straight to your Forum and Congrats on that!

    Thanks a lot on your time and patience!
    -sn

  80. sreen says:

    Thanks so much for all the help Nithin!

    No, I do not have any other speculative transactions. So as my option is:

    – ITR4 and no Tax Audit required.

    – Despite Total Turnover in Delivery Trades was >1.25 Crores Tax Audit is not mandatory and any Profit/Loss can be shown as Capital Gains/loss in ITR4? ( b/c. Salaried Individual, not involved with any formal Business or Profession).

    If I am wrong kindly correct me.

    Kind regards
    -sn

    • I have kind of lost track of your question. If you have only capital gains income, irrespective of what your turnover is, there is no need of audit. Just to reiterate

      1. IF no intraday equity turnover or speculative business income, and only capital gains with turnover greater than 1.25 crores use ITR2. No need of ITR4 as you don’t have any business income. ITR2 is if you have salary income and capital gains along with any interest income.
      2. If you have intraday equity or speculative business income, you will have to use ITR4.

      • sreen says:

        Dear Nithin,
        Thanks a lot for your time once again. I got your point.

        Here is the situation once again, may benefit other readers as well!
        ———————————————————————
        1. Intraday Trades: Total Turnover Rs. 6,600/-

        Intraday Trades: Total Profit Rs. 4200/-

        Profit on Intraday Trades (Rs.4200/-) was more than 8% (Rs.528) of Total TURNOVER of Intraday Trades (Rs. 6,600) and hence the ITR4 without Tax Audit.

        Apart from above, rest is as follows:.

        2. Turnover of Trades-Delivery = 1,25,00,000/- ( rounded off).

        Trades- Delivery P/L = – 4500/- (Short Term Capital Gains/Loss).

        3. Salary Income = 5,00, 000/- (Approx).

        4. Some Bank Interest.

        Summary:

        I need to file Return on ITR4 without Audit due to following conditions:

        “Intraday Trades (speculative income, Turnover 8% of Turnover)” and “Delivery Trades (Capital Gains/Loss)”, Salary income and Bank interest.

        Hope my assumption is right and not misleading to other readers.

        Best regard
        -sn

  81. Pratik says:

    Is speculation business also covered under section 44AD?

    If yes, then if a person who has earned a profit of more than 8% of the turnover and the turnover is below Rs. 1Cr. claim shelter under this section and show profits @ 8%?

    And also which ITR form should be used because ITR-4S cannot be used by a person who has speculation income.

  82. arun says:

    Sir,
    I received a notice from income tax department under section 139(9). It mentions error code 13- (If the income has not been offered and TDS has been claimed by the assesse then it will consider as a
    defective case).
    What is its solution and what can happen if answer is not given within 15 days, like is there any penalty or anything else charged for it?

    • My guess is that there is TDS deducted but corresponding income not declared. Do double check your original return filled with 26AS (26 AS shows all TDS). Ideally you need to fix this defect within 15 days, if you don’t then it will be considered as if your returns were not filed and you will have to file fresh ITR.

      • arun says:

        Sir,
        actually i made few mistakes while filing original ITR with acknowledge number 457378630020115, so i revised it and again submitted it on next day with acknowledge number 457410450030115 (as filing type- revised). But they processed original one and sent me notice under section 139(9) with error code 13.
        Please suggest me some steps that i should follow.

        PFA

  83. T Uma says:

    Hellow: I am non-working (Housewife) and only doing share trading under intra-day / delivery segments (cash). Though turn-over is more than Rs. 1 crore , there is a loss of about Rs.2 lakhs so far . In delivery I hold Rs.9 lakhs with a loss showing approx. 2 lakhs i.e. total scrips value is Rs.7 lakhs approx. I have been doing share trading since Feb2014 under icicidirect.com. Can you suggest as to what action I am required to take/initiate from Income Tax angle. I am very much confused, pls. Regards

  84. Ankit says:

    Sir I am CA final student I was doing future intra day transaction in F.Y 2012-13 I invest in my broker account Rs.2lakh and I lost all my money but my future intracardiac turnover is 5 crore and I have some other taxable income also but I didn’t filled income tax return but now I get Income tax notice so plz help me in tax treatment of share market transaction

    • Ankit, you cannot today rectify your returns for FY12-13. So the only option is to go meet the ITO. You could take the P&L, and ledger from 12/13 and show it to the ITO and explain that you had made a loss. Should be okay.

  85. trueblue says:

    Hi,

    I have a small query on my previous year return (AY 2014-15), for which I have today received a notice u/s 139(9). The notice says that since my net profit was below 8% of turnover, auditing of book is compulsory.

    Below are the relevant particulars of my business section (omitting my salary section). The turnover is only from part-time Futures and Options trading.

    Sale of goods: 4,47,071
    Purchase of goods: 2,96,134

    Therefore:
    Turnover = 7,43,205
    Gross Profit = 1,50,937

    Further I have claimed following expenses:
    Staff Welfare: 72,000
    Telephone: 19,488
    Brokerage: 3,774
    Depreciation: 66,117
    Total expenses: 1,61,379

    Net Profit: (-)10,442

    I was not aware of the 8% rule. Now, since I am a small time trader and don’t have detailed book keeping especially of staff welfare part, my query is whether I can change the expenses part so that the profit comes to be more than 8 % of turnover (i.e. Rs. 59,457). Will the taxman agree to me changing the claimed expense? I still won’t have to pay additional tax as it will be set of by carried-forward losses.

    Thank you,
    Lokesh

  86. Ganesh says:

    i have file income tax return on itr 1 for AY 2014-15 where i forget to show income and claimed tds as refund (tds deducted u/s 194J) then i revised the same with itr 4 with all details needed. now i have received notice under section 139(9) for AY 2014-15 itr -1.

    please guide me what do to further?

    shall i file xml file online under tab request u/s 139(9) and upload itr 4 xml file there?4

    waiting for you reply.

    Regards,
    Ganesh

  87. Varsha Parekh says:

    Nithin,

    Very useful blog. Thank you very much for religiously replying to the queries.

    My issue is very similar to many of them above: Have received 139 (9) notice for claiming loss on F&O saying “taxpayer has to fill Balance Sheet and P&L. In case assesse falls under 44AD and claiming less that 8% of turnover as profit – get the books of accounts audited”

    My total income (excluding F&O loss) was 1.1 Lakh. F&O loss (on 3 Lakh turnover) was 80K. So no matter how the ITO treat – tax impact is NIL. Female assess less than 60.

    My Question is: In response to 139 (9) can I use ITR 4S (and show 8% as income; everything else same) where as my original return was under ITR 4?

    Thank you very much for your help.

    Regards
    Varsha

  88. minal jain says:

    Sir ,
    My last year delivery Turnover was 390000 and Intraday loss and profit Trunover was 51000 around . ( sum of profit and loss) , so Have I to audit compulsory. My other business Income Was 107150, Some one saying your gross profit below 8% so i have to do audit compulsory,

  89. Nataraj says:

    Hi,
    This query is regarding taxation tool that has been introduced by Zerodha in Q. It is a great step forward for traders to simplify their tax obligations and congratulate Nitin and his team for this unique achievement.
    I have one request though on this. Currently the PL and turnover statements can be generated from Q system only from start of the financial year till date (YTD). Since my auditor asks for a similar report breakdown month wise and quarter wise for calculation of advance tax during the months of September, December and March, can i request for a similar feature to be provided soon on Q system?
    Anticipating an immediate and positive response on this. Thanks again for your wonderful services.

    Regards,
    Nataraj

  90. Right here is the right webpage for anybody who wishes to find out about this topic.
    You realize a whole lot its almost hard to argue with you
    (not that I personally would want to…HaHa).

    You definitely put a new spin on a subject that’s been discussed for ages.
    Wonderful stuff, just great!

  91. sanjeev mohanty says:

    sir i am getting salary under professional category, in 2014-2015 i got total ncome of rs, 30 lks and i suffered a loss of rs. 16 lks in commodities.
    1. i have to pay tax for 30 lks or 14 lks
    2. what is thae last date to file the return.

  92. Rv says:

    Sir,
    i want to start my own online brokerage firm. Right now i am doing b.com. So can you please tell me how can i go for it?
    thank you

  93. Daniel says:

    i am a trader of equity and future and options.I made a hugh loss this year….i have 5 months salary which is under 100000rs…..what i need to know is does my books of accounts need to be audited?Kindly reply..

  94. Nataraj says:

    Hi,

    Thanks for incorporating the changes that I mentioned for the Tax P&L module. However as I was testing the new feature from my ID, I noticed a few errors in the report content as below.

    1. When you query for the entire financial year 2015-16, the report generates for the timeframe from Jan 1, 2015 till date. It should be from Apr 1, 2015 till date
    2. When I use the option to choose and select the timeframe that I need (ie. choosing Start date and End Date), the report that is generated is again from Jan 1, 2015 till date. Irrespective whichever timeframe you choose it generates the same report mentioned above.

    This needs to be corrected. Since I also maintain the record of all my transactions on my PC discretely I was able to note the difference.

    Hope the error will be fixed ASAP. Thanks for your needful.

    Regards,
    Nataraj

  95. Nataraj says:

    Hi,

    Thanks for incorporating the changes that I mentioned for the Tax P&L module. However as I was testing the new feature from my ID, I noticed a few errors in the report content as below.

    1. When you query for the entire financial year 2015-16, the report generates for the timeframe from Jan 1, 2015 till date. It should be from Apr 1, 2015 till date
    2. When I use the option to choose and select the timeframe that I need (ie. choosing Start date and End Date), the report that is generated is again from Jan 1, 2015 till date. Irrespective whichever timeframe you choose it generates the same report mentioned above.

    This needs to be corrected. Since I also maintain the record of all my transactions on my PC discretely I was able to note the difference.

    Hope the error will be fixed ASAP. Thanks for your needful.

    Regards,
    Nataraj


    Reply

    avatar
    01 Nov 2015 at 04:04 PM
    Nithin Kamath Post author

    Checking.


    Reply

    avatar
    05 Nov 2015 at 08:37 AM
    Nataraj

    Any updates on this?

    The status remains same….No updates have been provided. Does this mean this feature need not be incorporated? Please clarify.

  96. minal jain says:

    sir , I got notice 139(9) and my file decalare defective,

    Actually, My Delivery Turnover of sales 390000 and intraday Profit 26000 and loss around 28000 near ) it means Turnover 54000, Total Turnover 440000, and loss around 17500,(including expenses) I do small Buniess and of Dress materail whihch sales it around 180000 and prucharsed around 75000, made profit , 105000, axpormitaly and FD intrerest around 48000 and PPF interes around 22000 ,
    I counsulted My C.A he said There is no need to Audit , Because i came under tax liability , But I Will have To summit P and L , and Balance Sheet as a proof,
    I will have to Revised return With P and l and balance sheet , or Rectify of 139(9).
    And Audit is not Required, I am worried about Audit , because if i have to , ITs cost too expensive, and Should I give Up Trading in Share Trading, and Purchasing It’s Really a Harresment

    • Minal, check this module on taxation, covers everything you need to know. You will have to get the audit done, and yeah file revised returns. Check the module, getting audit done is quite a simple task.

      • minal jain says:

        sir but My CA saying Audit not complusory and he summit only Profit and loss and balance sheet, I am very worried , i will never work in Stock market again. because audit fees to high, almost 20000 rs, and my total income is around 156000, and some one saying no audit need if your income below 250000

        • My bad Minal, didn’t realize that your total income was less than Rs 2.5lks. Yes, if there is no tax liability, that would mean no need of an audit.

          • minal jain says:

            thanks a lot sir , got some relief, and i summitted P and l and balance sheet, today, thanks a lot your support , thank you very much (sorry for repeat)

  97. Sachin says:

    HI Nithin
    Thanks for the great work. I must say the content here on the taxation and trading is more than the entire internet combined.
    My case is sort of funny. I am really not into stocks and trading. I just for writing some app for the stock market and to know what’s the game took a demat account and started intra-day trading. I did it for just 2 days. The combined profit is about 60 rs and loss is about 40 rs.
    after that someone scared me saying that since I have indulged in intra-day I have to file ITR-4. Is it true? Do I have go get my audit done as well? I can very easily not do intra-day trading this year anymore and declare whatever profit as my taxable income? I am a salaried employee belonging to 30% tax bracket.
    Another related question (out of paranoia of unknown) is, I had some long term investments (help for more than 3 years) in foreign stocks out of (RSUs receive from job) which I sold this year. I have paid taxes on 20% ( including indexation) on that. Does my tax liability of these LTCG change in anyway since I may be seen as a trader?

    thanks
    Sachin

    • Venu says:

      If you want your filing to be perfect, you’ve to file ITR – 4, and declare profits > 8% of turnover in which case audit is not required. As per law even one Intraday trade will require you to file ITR – 4. The liability by not filing ITR 4 may not be huge which is a call that you have to make 🙂

      About the LTCG, you’ve to show these LTCG gains and the tax paid on it in your IT returns.

  98. Sachin says:

    thnka Venu. the LTGC rates will remain as 20%with indexation right? it doesnt changdue to intraday trade right?

  99. Binay says:

    Hi Nitin,
    Thanks for the wonderful inputs and feedback. I am a salaried person but have been trading intra day aggressively. This is kind of a bad habit which has led to huge losses and very high turnover running into crores. I decided not to claim any losses to keep the return simple for AY 2014-15. I have now received a notice from IT under section 143 (2) and I suspect it’s due to high trading volumes as I do not have any income other than the salary and tax for the salary has been paid correctly. I appeared before the AO and I was told that a questionnaire would be sent after March. I am worried about the scrutiny. Could you tell me as to what could be the possible implications of this scrutiny? Could this also bring my old returns under scrutiny and could this also mean that I receive a similar notice for my returns of AY 2015-16? Thanks a lot for your support.

    • Binay, as long as you haven’t evaded paying taxes, you should be okay. It is best to consult a CA. I am guessing the best thing to do is to say that you didn’t think losses has to be filed, and you have paid all taxes on your salary income.You will have to file revised returns using ITR 4. For AY 2015/16, I think it is best to proactively file revised returns showing trading and using ITR4.

      • binay says:

        Thanks a lot Nitin for your feedback. But If I file ITR 4 and show losses then I would imagine that I would have to go through the audit process etc. Is this correct? Also, as I said I am an individual and I do not have BS and P&L for trading. How could this work?

  100. Sandeep Kumar DS0314 says:

    Sir
    i received income tax notice say not file income tax for year ay year 2013-2014 while in this year i made loss so i do not file as i have no other income and made loss in this year for this notice i go to CA said we file income tax return for 2013-14, 2014-15 and answer to notice charge 6500/- . i go to the link provide in letter and give answer to notice no taxable income. please suggest the procedure i do right if not then what i do sir please help in this matter.
    audit required or no audit .

    Profit and turnover breakdown
    Futures realized profit 6100.00
    Options realized profit -120721.25
    Total realized profit -114621.25
    Futures unrealized profit 0.00
    Options unrealized profit 0.00
    Total unrealized profit 0.00
    Futures turnover 82405.00
    Options turnover 2947022.50
    Total turnover 3029427.50

    Sandeep Kumar

  101. haji mohieen says:

    ddear sir,

    iam a new trader . my trading starts feb4 2016 .and my trade value is over all below 700 only .i got loss over all 300 rs/- in this condition what I will do.i am trading equity intraday and equity deliver (short time trade). is it file a IT for this march 2016.pls guide me sir,

  102. naren says:

    Never ever trade in share market. One thing is that u will loose money and second is that it deptt will be after u

  103. Bency kj says:

    u/s 139(9) I have remitted the due amount in bank but from the IT website i could not download xml to upload revised ITR. Please advise me

  104. Mudasir says:

    Hello Nitin,

    First of all thanks for your valuable time and contribution.

    My query is that if your total income for the year (trading + Salary+ any other income) is less than Rs 2.5lks (the minimum tax slab), this would mean that there is no tax you have to pay, and hence no need of an audit. Does it mean we need to file a return? If yes, do we need to use ITR4?

    • Yes, no need of audit, but it is best to file a return, yeah ITR4. Today, we are getting automated notices if IT department spots people trading, but not filing returns.

  105. Nishant says:

    Hello Nitin,
    First, Thanks for your commendable contribution towards tax clarification.

    Recently,i received notices from IT Department for assessment year 2012-13 & 2013-14 for below points:
    As I was doing trading on my wife’s account and net status is in loss only, hence i haven’t filed any ITR for those years.The trading happened on all segments Cash + Future+Options+Currency+Commodity but the net is loss only.The capital in my wife’s account is transferred by my taxable income as she has no other income, however there are lots of transaction happened to and fro for various amounts in those years ( I hope it doesn’t matters for IT dept).

    To conclude, I have submitted the response for below as “ITR hasn’t been filed due to non taxable income”. Is this the correct response or is there any further chances to get the notices again for another reason ?

    1 2012-13 STT-01 Purchase of equity share in a recognised stock exchange
    2 2012-13 STT-02 Sale of equity share (settled by the actual delivery or transfer) in a recognised stock exchange
    3 2012-13 STT-03 Sale of equity share (settled otherwise than by the actual delivery or transfer) in a recognised stock exchange
    4 2012-13 STT-04 Sale of option in securities (derivative) in a recognised stock exchange.
    5 2013-14 CIB-502 Contract of Rs. 10,00,000/- or more in the Commodities Exchange
    6 2013-14 STT-01 Purchase of equity share in a recognised stock exchange
    7 2013-14 STT-02 Sale of equity share (settled by the actual delivery or transfer) in a recognised stock exchange
    8 2013-14 STT-03 Sale of equity share (settled otherwise than by the actual delivery or transfer) in a recognised stock exchange
    9 2013-14 STT-04 Sale of option in securities (derivative) in a recognised stock exchange.
    10 2013-14 STT-05 Sale of futures (derivative) in a recognised stock exchange.

    Similarly for assessment years 2014-15, 2015-16, i earned, but its not upto taxable limit, so do i need to file the ITR ? Specifically, for 2015-16 i might have exceeded the turnover of 1 cr , however the profit still remains below taxable limit.

    When we say taxable limit, can we consider the sec 80c deduction in order to come out at this limit, Lets say the income from trading is 400000, after sec 80c deduction of Rs 150000, the taxable income comes to Rs 2,50,000, accordingly we don’t need to pay any tax, is it correct ?

    Please suggest.
    Thanks in advance for your response.

    • Your response is right. They might ask you to visit them and prove it.
      It is best to file ITR, even in loss, so you don’t get such notices. If you have done over 1 crore turnover, you will also need to get an audit done. Check this module, where we have explained everything that you need to know.
      If you are using the benefit of section 80C, you will have to file your returns, but yeah no need to pay any tax.

      • Nishant says:

        Hi Nithin,

        Thanks your your reply. Just need one more clarification.
        Regarding the below statement –
        If you have done over 1 crore turnover, you will also need to get an audit done – Here the income earned haven’t crossed the taxable limit of Rs 250000, do i still need to go for an audit ?

        Regards
        Nishant

        • It turnover is over Rs 1crore, then compulsory audit. Check this chapter to understand how turnover is supposed to be calculated, it is not trading turnover.

          • Nishant says:

            Hi Nitin,

            Please clarify for the below point and I think you have to include this point in the turnover chapter for better clarification –

            If turnover is greater than 1 crore, but income is less than the taxable limit of Rs 250,000.

            1. Does it requires an audit ? If yes, can we escape filing ITR as the income is less than taxable limit (just to avoid the CA charges) ?
            2. The same case above , if income is 400,000 and if we reduce it to less than taxable limit by shwing 80c deductions, does it becomes the point no 1. where we do not need to file the ITR ?

            I know i am asking the same question but i am still not clear that’s why asking it again. Please don’t get annoyed.

            Thanks & Regards
            Nishant

            • 1. If turnover more than 1 crore, need an audit even if income less than 2.5lks.
              2. If turnover is more than 1 crore, audit is required no matter what.

              • Nishant says:

                Thanks Nithin for the clarification.

                One thing is cleared from the discussion, there are more than 90% chances for audit in trading options ( in any case whether profit or loss as its very difficult to earn more than 8 % of profit in options trading, however the turnover can easily get over 1 crore).

  106. Dattaram Parab says:

    Hello sir
    I have received notice from income tax for A.Y. 2014-2015 stating large value transactions (sale of equity other than delivery)reported in security transaction, capital gain not offered in ITR
    I am salaried person and was doing intraday trading in said year and turnover is 3cr. and loss of 1lac
    I have filed my return for that year in ITR 1 and not shown any capital gain/loss
    Now should penalty will be imposed on me and how much it will be

    • Venu says:

      The notice you’ve received is seeking clarification why you haven’t filed the returns accurately. You are given an opportunity to respond and justify the basis on which you chose not to include these details. It’s best to get in touch with a CA who can advice and help you with this. After your reply, a penalty if deemed necessary will be levied.

  107. Dattaram Parab says:

    Also my total income for A.Y. is 247000/-

  108. Nishant says:

    Hi Nithin,

    I require one more clarification in terms of calculating option turnover specially for below point.
    >>Premium received on sale of options is to be included in turnover.

    Does it needs to be included only when the option is not squared off ? i.e the option is expired as 0. but then also it is considered as profit/loss only ( depends on the position taken first either sell or buy) , and if we consider the sale value again, then it will be a double calculation of the turnover.

    Another normal case, when we are taking the profit from option then how come the sale value to be considered as Premium received as in original the premium is squared off in terms of profit and loss( logically), hence the profit/loss should be calculated as turnover only.

    For me it seems to be a debatable topic, where some people consider only profit/loss for turnover calculation just like Futures.

    In case you have a different opinion , please share your thoughts on it.

    Regards
    Nishant

  109. Murthy says:

    Hi Nitin,
    Thanks for this post, really very usefull.. I have a question. Appreciate your answer to this

    I only have loss (around 2 lakh) in F&O and my turn over is less than 1 Crore.. As per what I read in your post , I am supposed to maintain books of account and get it audited by CA. However , I would like to know if it is an option for me to not declare those losses at all in my return ( ofcourse loose the opportunity to carry forward the losses) and that way, I don’t have to go through the hassle of CA audit ? please advise

    • Murthy, if you don’t declare this loss, there is a possibility that you can get a IT scrutiny notice because you have traded and not declared. Audit is not required if you have no other taxable income. Audit is nothing tough. Check this post.

  110. Vishnu Sankaran says:

    Dear Nithin,

    I was doing FNO trading 2015-16 year and my turnover was not more than 1 crore. However I made a loss of Rs. 10 Lac during this time. Do I need to do audit with a CA? kindly advise.

    Regards,

    Vishnu Sankaran

  111. Ramprasad says:

    Hi nitin,

    in F&O and equity trading which column will i consider as my turnover (turnover column or turnover with sale value)

    i made major transaction in F&O trading on delivery basis, and 10 to 12 transactions of equity on short term basis, also i am salaried employee.

    please tell me do i need to audit my book and which ITR form i need use to file my retruns.

  112. sachin says:

    Hello Team,
    I am a salaried employee.. i’ve done occasional trading in F& O last FY.. my overall turnover is above 1 cr.. i have total loss around 35k.. my question
    1) is it compulsory to file itr4 ..can’t i file itr2 and let go of loss..
    2) do i need to get tax audited if it is itr4

    i would really appreciate it if you can clarify above as i am getting various opinions .. its really urgent..

  113. Kumaran says:

    Hi Nithin,

    IT dept has seeking a response for a defective return filed, Need your Help

    Defects as per CPC:
    =====================
    Error Code :14

    Error Description:
    ——————
    Tax Payer has entered negative amount in gross profit or net profit in Sl. No. 51b and 51d of Part B of Profit and Loss Account

    Probable Resolution:
    =====================
    Assessee has claimed loss under the head profit and gains of business or profession, however he has to fill Balance sheet and Profit and Loss account. Incase assessee’s falls under section 44AD assessee also has to get his books of account audited if his income is less than 8% of the gross receipts.

    Do you agree with the defect:
    =============================
    Select Yes/No

    1. I filed ITR-4 to declare and carry forward speculative loss (intraday loss = Rs 1580)
    2. I reported Speculative loss under P&L section in No Account Case (Sl.No 53) and in Schedule BP (A.2a Net profot or loss from
    speculative buisness) , the loss get computed and placed in appropriate tabs(CFL) in ITR-4 excel sheet
    3. My total income is less than 2.5 lakhs
    4. My STCG – 1,40,000/- (one lakh forty thousand),reported as STCG
    5. Turnover less than 1 crore

    What should be my response to the notice u/s 139(9) defective return filed ?

    Thanks in Advance,
    Kumaran

  114. Kumaran says:

    Thanks Nithin .

    Now, Will I be able to show the reported STCG income as a buisness income in a revised return and avoid audit under section 44AD .

    Thanks,
    Kumaran.

  115. Kumaran says:

    Thanks for the reply.

  116. amit says:

    sir

    i have received income tax notice to file return from year 2013

    i did some trading over the years though did not made any profit

    i have no other sources of income but studying & working part time with my uncle to learn his business(no income)did trading while sitting idle in his office some time times i would get profit sometimes loss over it was loss only –
    when i made some money i did some heavy trading in options holding them for few days but it ended in loss

    plz guide me what should i do -which form should i fill
    do i have to file 3 returns for 3 years
    can i file online return -someone said last date for online filing has passed
    will the tax department believe that i made no profit ? do i have attach the quarterly statements from bank +brokerage

    • it is too late to file ITR, you have to respond to the notice saying that you hadn’t filed ITR because you had no income and hence no taxes to pay. You can show your P&L and bank account statements to show no income if the officer asks.

  117. ramesh says:

    person done speculation loss in stock market rs.1500000 and shown in income tax return rs.215000 by mistake
    what is consequence in tax matter

  118. Sagar says:

    Hello sir I received scrutiny notice under section 143/2. It’s of type limited scrutiny. It’s for assessment year 2015-16. Please guide me about what to do now.

  119. Sujay says:

    I have filed IT return for AY 2015-16 on time with audit report as well. However I have received a notice under section 143(2) for limited scrutiny regarding sales turnover mismatch, Derivative transaction and Securities Transaction.
    What are the documents that need to be submitted to the AO for this purpose.

    • You can take your tradebook, ledger, bank statement and P&L statement. Best to show them ledger first.

    • naren says:

      Were u in loss or profit. and wat was ur turnover

    • naren says:

      Plz let me know whether u r a bussiness man or salaried person and did u declared ur trading activity in itr

      • Sujay says:

        I am salaried. I have declared my trading activity. I was in small profit but with deductions of brokerage and other taxes it was net loss. I had undergone audit from CA and then submitted ITR4

        • naren says:

          Wat was turnover and in which city u got the notice. And when did u got it.was it by post or e mail. And have u attended the ito

          • Sujay says:

            City: Pune. Turnover roughly 15lakhs. Date is in september.
            Did u get a similar notice? If so how have you approached it?

            • naren says:

              Till now i have not, but i m afraid that i may get…. Bcoz last yr i got one….. I was in loss last year, but i filled itr1 and didnt declared it…..so i got the notice for complete scrutiny…… So last year also i did the same mistake i.e for 2014-15 first i filled itr1 without declaring my loss but then after getting the notice in sep2015 i revised the return or 2014-15 and filled itr4 and instead of showing loss, i showed 8% profit of turnover and paid tax on that, just to avoid audit….. Now i am again afraid that i may get notice this year also….. For last year my assessment is over and it was a easy through process. It depends upon the AO.

            • naren says:

              I would say dont go urself,, just hire a CA……..HEcan handle it easily…..
              And plz stop this f…..ing share trading…..

              • Sujay says:

                Thanks for sharing your inputs.
                Yes I will be going through a CA.

                • naren says:

                  Have u done intraday trading also and wat is the concern relating to sales turnover. And plz tell that have u done trading 2013-14 and did u declared that in itr and is it the first time u got notice

  120. Nilesh says:

    Hi Nitin,

    Its the first time I am doing F&O trading. I have no other sources of income.

    I started an account with 1 Lakh and lost 55k in Options. None of the trades were profitable. All the purchased Options during the FY were sold at a loss. Total Debit Activity in the account was 2.54 Lakhs and Total Credit was 2.98 laks (including my capital of 1 Lakh), thus a total loss incurred was 55k Rs on all the options. Net account balance at the end of FY is 45k.

    For this, will I have to get the thing audited from the CA or I can just file a normal return? Will I have to ask CA to fill the ITR 4? Kindly let me know.

    Thanks

  121. Nilesh says:

    thanks Nitin

  122. gaurav says:

    I have turnover of 9 lakhs and net loss of 80k for 2014-15 and turnover of 34 lakhs and net loss of 4lakhs for 2015-16.
    Both the years , i didn’t show it in ITR as it was a loss. My other business income is about 5 lakhs each for these 2 years.
    I have got a notice for 2014-15 to explain the “large value transactions of 26 crore…..” i dont know where they got this figure from…. i have calculated turnover as explained above and told by my CA also to add the loss and profit.
    Should i just send the ITO a reply through CA that this “large value transaction ” doesn’t pertain to me ….. giving the trading ledger attached for 2 years…. Also do i need to get it audited now as i think its late for that now … and also the notice doesn’t ask for this …And just furnish the trading details from next time within time…….

    • Gaurav, the IT department would have gotten the trade files from the exchange, they would have calculated contract turnover. You have to give them an explanation on your correct turnover and trading ledger. It is late to get audited now, so your reply should ideally say that you hadn’t declared it because there was a loss (their main concern will be to check if you have evaded paying taxes).

  123. Narasimham says:

    Dear Sir,
    I am a newly joined trader and now slowly doing trading on zerodha platform.I need your clarification on the following:
    Dear Sir,
    This blog is very educative and deserves appreciation.However need your advice on the following.
    I have started this intraday equity (cash) trading for the last 3 to 4 days and the turn over (cost of buy & sell shares)amounts to 17lacs,7lacs ,20 lacs per day etc.Net profit / loss is under loss .However will this huge turnover amount running into lacs of rupees per each day has any bearing /criteria for income tax purposes or any other related matters in future.The margin money is promptly provided by Zerodha.

    Awaiting your reply per return please.
    Best regards.

    Narasimham

    • Venu says:

      For all speculative transactions, aggregate or absolute sum of both positive and negative differences from trades is to be considered as a turnover. So if you buy 100 share of Reliance at 800 in the morning and sell at 820 by afternoon, you make a profit or positive difference of Rs 2000, this Rs.2000 can be considered as turnover for this trade.

  124. Santhosh S says:

    was following this thread.. found a note the following
    “But note that if your total income for the year (trading + Salary+ any other income) is less than Rs 2.5lks (the minimum tax slab), this would mean that there is no tax you have to pay, and hence no need of an audit.”

    so, in case 139(9) notice is send to a person whose total income is less than 2.5L, can he reject the notice?

  125. Ganesan says:

    Dear Mr.Nitin,
    I am doing F& O trading.
    When preparing the audit statement, how to calculate the “BUY value ‘ & “SELL value” for F&O scripts.
    For example in zerodha’s FO-TAX-P&L statement,
    UPL16MARFUT 10000.00 405.06 4050600.00 10000.00 406.52 4065200.00 0.00 0.00 14600.00
    IOC16JANFUT 1200.00 428.65 514380.00 1200.00 430.60 516720.00 0.00 0.00 2340.00
    CAIRN16APRFUT 2000.00 220.53 441050.00 2000.00 212.20 424400.00 0.00 0.00 -16650.00

    I am able to understand how to calculate the turnover from the profit/ loss values (i.e the aboslute value of profit & loss total).
    But in preparing statement, how much will be value of BUY & SELL in the above cases.
    How to arrive BUY or SELL value of individual transactions.
    Buy and Sell value in case of Equity is easily understood, but in F&O how to calulcate this for audit purpose, to submit to IT dept.
    Thanks
    Ganesan

    the profit is 2340

  126. MG says:

    Dear Nithin
    I incurred a loss of Approx 14 Lakhs in FY 15-16 with settlement turnover of approx 35 Lakhs. I have claimed the same in my ITR with trade details as well as Portfolio PnL statement. as the total turnover was less than 1 crore I didnt get it audited. I have got the notice from IT department stating that my ITR is faulty under section 44AD. I have no other business income.

    Req you to pl suggest what shall I do? Is it mandatory in my case to get the account audited.

    Regards and Thanks in advance.

  127. Kiran says:

    Dear Nithin,

    Yourself and Zerodha team are doing a great service to trader and investor community and lot of them really appreciate it. Regarding the petition you had filed to “Exclude Business of trading in securities and derivatives from Section 44AD”, was there any progress or update from the government or authorities? It’s really important that they consider this request as all transactions in derivatives are fully digital and recorded by exchanges, and small traders should not be burdened with audit for genuine losses where transactions are directly available with exchanges.

    Please consider submitting the petition again along with other interested parties as this will immensely help the small traders doing derivatives trading.

    Regards
    Kiran

  128. amolsarode1 says:

    Hi Nithin,

    I got notice under section 139 (9) error code 811 saying
    Income/Receipts the have been reduced at sl. no 3 of Schedule BP are higher than the income/receipts that have been credited to the P and L A/c.

    Can you let me know which values are missing? Sr. No.3 in BP needs details of Income/Receipts under other heads of income.
    I have taken item 45 of P & L to BP-A1. This value is again getting reduced if I enter anything in A3 in BP.

    Regards,
    Amol

    • sl.no 3 of BP to be filled if the other source income are part of profit & Loss account. sl.no can’t be more than top line if they are included in the P&L.

      • amolsarode1 says:

        Dear Nithin,

        I am salaried individual doing FnO trading and incurred loss so filed ITR and filled P&L and Balace sheet.

        As I said earlier: “I have taken item 45 of P & L to BP-A1” : This value is negative as I incurred loss.
        Now, Sr. No 3 of BP is Zero which means its more than the top line?
        Negative values are not allowed in Sr. no.3 and also Positive values are increasing the loss which I don’t want.

        My P&L is not having my salary. I have added Salary in only Part B-TI TTI. should I include it in P&L and then reduce the same in sr. no 3? Where should I put salary in P&L? Is Section 2X (Any other income (specify nature and amount) ) correct for it?

        Regards,
        Amol Sarode

        • Salary needn’t be added in the P&L as its taxed under different head altogether. If the Profit & Loss is only of the business income then there is no adjustment required in SL 3.
          SL 45 to BP is fetched automatically.

          • amolsarode1 says:

            Thanks for your support and clarifications Nithin.

            That is exactly how I had filed the return. i.e. Nothing mentioned in SL 3; But got the notice saying
            “Income/Receipts that have been reduced at sl. no 3 of Schedule BP are higher than the income/receipts that have been credited to the P and L A/c.”

            Maybe CA can only help now.

            • Lalit says:

              Hello amolsarode,

              if solved, can you please post the final resolution regarding this error code 811.
              thanks in advance

              best regards
              lalit

  129. Tariq bhat says:

    Dear Sir

    I Have Filed Income tax Return not on Due date. After that i received notice u/s 139(9) From Income tax Department but i was unable to rectify the defective of return within prescribed time (15 days). then they sent me reminder for declaring my return as invailed, but i was not respone to that mail also due to non access of email.
    Now i want to tell you that, is there any remedy for my income tax return filed. i want to make my retun valid either through refiling or through any other means.
    Thanks
    Regards
    Tariq bhat

  130. Thirumal kumar madhavan says:

    I need a clarification on the query raised by IT department regarding derivative trading.
    I do not “write” (sell) options at all, but have bought and sold options for profit/loss.
    The query is as under:
    “STT-04 Sale of option in securities(derivative) in a recognized stock exchange.
    STT-05 Sale of futures (derivative) in a recognized stock exchange.”
    Does the word “Sale” refers to “Writing of option” or “Sale of option bought (before expiry)”.

  131. Roshan says:

    Sir I mostly do delivery based transaction but only two times i had done Intraday on which I had suffer loss.
    so my question is, In which way I should file my return weather considering my self as Investor or Trader
    If i consider my self as Investor do i still need to give the detail of losses from intraday.
    and if am ready with the fact that I will not be able to carry forward that loss do i still net to file return.
    Please Guide me
    Thanks

  132. surabhi says:

    I am using zerodha from last 8 months.
    In last financial year I have intraday trading losses and some gains in CNC orders.
    The tax P&L which I downloaded showing all charges brokerage etc combined.
    If we cant add intraday trading loses with short term gains why the charges are not separated in tax p & l.
    Spoke to customer care and sent emails too but no satisfactory reply yet.
    Please let me know how to resolve this as my CA asking separate charges for both type trades.
    Thanks

    • Surabhi, the current P&L can’t show charges separately. You’d have to manually separate it out approximately. The new P&L we are introducing in the next few weeks has this feature.

  133. Ashutosh Shah says:

    Hi Nitin, thanks for the great writeup. I was very helpful. I have few doubts .(my trading was above 2crores and had loss of 1 lac in short term and intraday. My business income was 10 lacs )
    1) i have never got my file audited so can you tell me what are the files that might be required.
    2) my income tax lawyer is telling me to get all the contract notes entered in excel then only he can file my return ( he is asking 35k for that )
    3) i don’t have proper books for business. Will it create a problem.
    4) will there be any other issue?

    I would appreciate if you will help me .I am really worried.

  134. Rahul says:

    Hi Nitin,
    I want to open a LLP with 2 of my friends for trading. We will be doing trading through a professional trader.
    1. How should we distribute the profits arising from trading to avoid double taxation?
    2. Can we draw variable salary from the LLP?

    Thanks in Advance

  135. Rudra says:

    Hi,

    I have been into delivery based investing till now and was considering starting intra day trading (equity) also. In fact, I did couple of trades just to have a feel of it (Trade value around INR 2 Lacs with small profit). However, going through this page about the tax issues, I am seriously contemplating about not proceeding further with intra day trading of equities.

    Do I still classify myself as Investor if I do not proceed with further day trading (since I already did couple of trades)?

    Also, can somebody classify himself as trader in one Financial year and go back to investor (if he has not done any speculative trading) in the next financial year.

    Thanks in advance for your response.

    Thanks and Regards
    Rudra

  136. praveen agarwal says:

    sir
    I have audited for 2014-15 but my CA mentioned only business turnover of 10 crore not mentioned share trading turnover.He declare 1600 short term loss in balance sheet.Now income tax department noticed for miss match of sales turnover and ITO objection that no share trading turnover mentioned please suggest me for this matter

    • hmm.. I guess you have to explain to the ITO that you didn’t know that it has to be shown as business income. Also since you haven’t evaded any taxes (since you are in a loss), that you can revise the return. But yeah, best to consult the CA.

  137. Mohammad Naziruddin says:

    Hello Sir:
    I got the following notice yesterday, I do not yet know what to do. Can you help?


    Error Description:
    As per Rule 37BA of the Income Tax Rules, 1962, read with Section 199 of the Income Tax Act, 1961, credit of tax
    deducted at source shall be given for the assessment year for which such income is assessable. As seen from the return of income filed, credit for TDS has been claimed but the corresponding receipts/income has been omitted to be offered for taxation. The above omission is a defect, as per clause (a) of the Explanation provided under
    section 139(9).

    Possible Resolution:
    The gross receipts/income, on which tax has been deducted, are to be entered in the schedules under the respective heads of income, as they are assessable in the year in which the credit for the TDS is being claimed.

    Regards,
    Nazir

  138. TEJASH KHATRI says:

    As seen from the Audit information mentioned under ‘General’ information in ‘Part A- Gen’ of the return filed, the flag has been ticked as “Yes” against – ‘Whether liable for Audit under section 44AB?’. However, the audit report, u/s.44AB has not been filed electronically, as required under Rule 12(3) of the Income Tax Rules, 1962. Hence, as per clause (bb) of the Explanation under section 139(9), the return filed is regarded as defective
    please help me…

  139. Manish says:

    Hi Nithin,

    I have a trading loss of 11L, but I have my consultancy income of 10L for the FY 2017-18.

    Can I balance both and declare 1L Loss OR is it mandatory to show trading loss separately and consequently requirement of Audit, I am not interested in carrying forward the loss for future years.

    Thanks!

  140. T RENUKA says:

    Sir, I am a housewife with no other income and starting doing short term trading of around 20000/- per day (both buy & sell including) mostly under BTST or sell in a couple of days. My total income/loss may be around Rs 1 lakh. Do I have to file my return.

  141. Abhilash Dominic says:

    Hi NIthin,

    What exactly you meant by “everyone trading the markets actively as a business”
    I am an IT employee not much of intra-day trading but I buy and sell stocks. So does it considered as a business? Even though I do not have a company or business registered?

  142. Shiv says:

    Hi Nitin,

    I do not see calculation for F&O turnover and profit/losses while downloading tax P&L reports for any financial year. 1. How do we show the losses occurred, is there any other link to download same?
    2. I have not filed ITR for any of the years (Started trading since 2015 and a salaried employee in 20% tax bracket) – Can I file the ITR for previous years as well and show my losses which can be carried forward for next 8 years?

    Regards,
    Shiv

  143. Ravi Kant Tiwari says:

    Hello again
    I am in profit under FNO trading but loss in overall trading along with short term delivery.
    Will These two items be considered as business or treatment will be separated??

    If my accounts get audited this year ( because I am in overall loss ) carryover will take place for next few years to compensate my loss. Will next year again I need to get audit done for this compensatory relief??

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