Calculate Turnover for Tax Audit u/s 44AB in Case of OPTIONS!!

From time to time ICAI has issued the updated version of Guidance Note on Tax Audit u/s 44AB (eight edition) after incorporating the changes/ amendments in provisions relating to tax audit and reporting requirements for the relevant assessment year, for information and support of the Members.

How to calculate the turnover in a transaction of options?

As per the Seventh Edition of GN issued in 2014 As per the Eighth Edition of GN issued in 2022
(i) The total of favourable and unfavourable differences shall be taken as turnover.
(ii) Premium received on sale of options is also to be included in turnover.
(iii) In respect of any reverse trades entered, the difference thereon, should also form part of the turnover.		(i) The total of favourable and unfavourable differences shall be taken as turnover.
(ii) Premium received on sale of options is also to be included in turnover. However, where the premium received is included for determining net profit for transactions, the same should not be separately included.
(iii) In respect of any reverse trades entered, the difference thereon, should also form part of the turnover.

Note: Earlier in the calculation of turnover, the premium received was in principal considered twice i.e both in point (i) and point (ii) above. The portion of the premium during the sale was already included in the total of favourable and unfavourable differences.

Practical Example to understand the change in the calculation of turnover

Mr. Suresh did the following option trading transactions

  • Bought 1 lot of call option 500 shares of EFG for Rs. 80 & sold at Rs. 100 (Call Option) and
  • Bought 1 lot of put Option, lot size 500 share of KLM for Rs 50 and sold at Rs. 45.
  • Sold 1 lot of Call option, lot size 500 shares of XYZ for Rs. 60 and contract not squared off on expiry and delivery is given.

The first two transactions are examples of squared-off transactions and the third transaction is the example of the contract not expired and settled through delivery.

Script NameTransaction TypeLot SizePurchase ValueSales Value (Premium received on Sale)Gain / (Loss)Turnover as per GN 2022Turnover as per GN 2014
(1)(2)(3)(4)(5)(6)(7) =(5)-(4)(8) = (5)+(6)
EFGCall Option50040,00050,00010,00010,000(Note-1)60,000(Note-2)
KLMPut Option5002500022,500(2,500)Loss2,50025,000
XYZCall Option (Not squared off)500–30,000–30,000(Note-3)30,000
Total42,5001,15,000

As we can see in the above example Turnover as per New Guidance Note 2022 would be Rs. 42,500/- and as per old Guidance Note 2014 would be Rs. 1,15,000/-.

Note -1: Turnover = As premium received is included for determining profit/loss so it’s not included in turnover i.e. Absolute Profit/Loss = 10,000/-

Note -2: Turnover = Premium received on sale 50,000 + Absolute Profit/Loss Rs. 10,000 = 60,000

Note -3: Turnover = Premium received on the deemed sale of that contract on the expiry date, premium received is not included in determining profit/loss. {SEBI mandates physical settlement if a trader holds a position in any of the stock F&O contracts on the expiry date if the contract is not squared off.}

Let us see the various categories of taxpayers below:

Category of personThreshold
Business
Carrying on business (not opting for presumptive taxation scheme*)Total sales, turnover or gross receipts exceed Rs.1 crore in the FY
If cash transactions are up to 5% of total gross receipts and payments, the threshold limit of turnover for tax audit is increased to Rs.10 crores (w.e.f. FY 2020-21)
Carrying on business eligible for presumptive taxation under Section 44AE, 44BB or 44BBBClaims profits or gains lower than the prescribed limit under presumptive taxation scheme
Carrying on business eligible for presumptive taxation under Section 44AD Declares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic threshold limit.
Carrying on the business and is not eligible to claim presumptive taxation under Section 44AD due to opting out for presumptive taxation in any one financial year of the lock-in period i.e. 5 consecutive years from when the presumptive tax scheme was optedIf income exceeds the maximum amount not chargeable to tax in the subsequent 5 consecutive tax years from the financial year when the presumptive taxation was not opted for
Carrying on business which is declaring profits as per presumptive taxation scheme under Section 44ADIf income exceeds the maximum amount not chargeable to tax in the subsequent 5 consecutive tax years from the financial year when the presumptive taxation was not opted for
Carrying on business which is declaring profits as per presumptive taxation scheme under Section 44ADIf the total sales, turnover or gross receipts does not exceed Rs 2 crore in the financial year, then tax audit will not apply to such businesses.
Profession
Carrying on profession Total gross receipts exceed Rs 50 lakh in the FY 
Carrying on the profession eligible for presumptive taxation under Section 44ADA1. Claims profits or gains lower than the prescribed limit under the presumptive taxation scheme 
2. Income exceeds the maximum amount not chargeable to income tax
Business loss
In case of loss from carrying on of business and not opting for presumptive taxation schemeTotal sales, turnover or gross receipts exceed Rs 1 crore
If taxpayer’s total income exceeds basic threshold limit but he has incurred a loss from carrying on a business (not opting for presumptive taxation scheme)In case of loss from business when sales, turnover or gross receipts exceed 1 crore, the taxpayer is subject to tax audit under 44AB
Carrying on business (opting presumptive taxation scheme under section 44AD) and having a business loss but with income below basic threshold limitTax audit not applicable
Carrying on business (presumptive taxation scheme under section 44AD applicable) and having a business loss but with income exceeding basic threshold limitDeclares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic threshold limit

Revised Income Tax Audit Limits for AY 2022-23

In this article, we will discuss compulsory tax audit of accounts for A.Y.2022-23 (F.Y.2021-22 from 01-04-2021 to 31-03-2022)., You can find here the tax audit limits for businesses, and tax audit limits for professionals (like doctors, accountants, architects etc. for the assessment year 2022-23. It covers all the amendments related to the finance act 2021 and finance act 2022.

Under section 44AB of the Act, every person carrying on business is required to get his accounts audited, if his total sales, turnover or gross receipts, in business exceed or exceeds one crore rupees in any previous year. In case of a person carrying on profession he is required to get his accounts audited, if his gross receipt in profession exceeds, fifty lakh rupees in any previous year. In order to reduce compliance burden on small and medium enterprises, through Finance Act 2020, the threshold limit for a person carrying on business was increased from one crore rupees to five crore rupees in cases where,-

(i) aggregate of all receipts in cash during the previous year does not exceed five per cent of such receipt; and

(ii) aggregate of all payments in cash during the previous year does not exceed five per cent of such payment.

In order to incentivise non-cash transactions to promote digital economy and to further reduce compliance burden of small and medium enterprises, it is proposed to increase the threshold from five crore rupees to ten crore rupees in cases listed above.

In case of person engaged in business and opting for presumptive taxation under section 44AD:

Turnover limit for the previous year Amount of profit with respect to turnover (in %) Whether cash receipts less than 5% of the Turnover Whether cash payment less than 5% of the total payment Is Tax audit Applicable?
More than 10 Crores Not applicable Not applicable Not applicable Yes
More than 2 crore but upto 10 Crore Not applicable Yes Yes No
More than 2 crore but upto 10 Crore Not applicable No No Yes
More than 1 crore but upto 2 Crore More than 8% or 6% of Turnover Not applicable Not applicable No
More than 1 crore but upto 2 Crore Less than 8% or 6% of Turnover Not applicable Not applicable Yes
Less than 1 Crore More than 8% or 6% of Turnover Not applicable Not applicable No
Less than 1 Crore Less than 8% or 6% of Turnover Not applicable Not applicable Yes

In case of person engaged in profession and opting for presumptive taxation under section 44ADA:

Turnover limit for the previous year Amount of profit with respect to turnover (in %) Is audit Applicable?
More than 50 Lakhs Not applicable Yes 44AB(b)
Upto 50 Lakhs More than 50% No
Upto 50 Lakhs less than 50% (sec 44ADA) Yes 44AB(d)

Due Dates for Audit

Here is the complete table of due dates for the audit report for a.y. 2023-23 along with form number.

Taxpayers Audit Form No. Statement Particulars Due Dates for Audit and Uploading Audit Report
In the case of a person covered under section 44AB (who gets his accounts audited) Form No. 3CB Form No.3CD One month prior to the due date of furnishing the income tax return.
  • A person covered by section 44AB should get his accounts audited and should obtain the audit report on or before 30th September of the relevant assessment year.
  • If not extended, the tax audit report for the financial year 2021-22 should be obtained by 30th September 2022. The due date to file an income tax return (Business requiring audit other than transfer pricing) is 31st October 2022.
  • A chartered accountant must electronically file the tax audit report with the Income Tax Department.
  • For more detail about due dates and to upload the audit report visit the official website of the income tax department. (i.e., at https://www.incometax.gov.in/iec/foportal).

Penalty for Not Getting Accounts Audited

In accordance with section 271B, an Assessing Officer may impose a penalty if a person who is required to comply with section 44AB fails to get his accounts audited in respect of any year or years. The penalty shall be lower of the following amounts:

(a) 0.5% of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in the profession, in such year or years.
(b) Rs. 1,50,000.

Nevertheless, if reasonable cause is proved, no penalty shall be imposed.

Govt’s net tax collection rises 86% to Rs 5.57 lakh crore in Quarter1

Govt’s net tax collection rises 86% to Rs 5.57 lakh crore in Quarter1

Parliament was informed on Monday that the government’s total tax collection increased by almost 86 percent in the April-June quarter to more than Rs 5.57 lakh crore. Net direct tax collection totaled Rs 2.46 lakh crore, while indirect tax collection totaled Rs 3.11 lakh crore.

Minister of State for Finance Pankaj Chaudhary said, “The net direct tax collection in the first quarter of FY 2021-2022 is Rs 2,46,519.82 crore as against Rs 1,17,783.87 crore during the same period of previous FY 2020-21, representing a growth of 109.3 percent.”

In the first quarter of FY 2021-2022, net indirect tax collection was Rs 3,11,398 crore, up from Rs 1,82,862 crore in the same time the previous year, a 70.3 percent increase.

In response to another query, Chaudhary stated that the Income Tax Department takes appropriate action against tax evaders in accordance with applicable legislation.

Searches, surveys, inquiries, income assessments, tax levy, interest, penalties, and the filing of prosecution cases in criminal courts, if applicable, are examples of actions taken under direct tax laws.

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Furthermore, under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act of 2015, more than 107 criminal complaints have been submitted.
Assessment orders under the Act had been issued in 166 cases as of May 31, 2021, with a total demand of Rs 8,216 crore.

In the HSBC cases, concealed income of around Rs 8,465 crore was brought to tax, and a penalty of Rs 1,294 crore was imposed. In ICIJ (International Consortium of Investigative Journalists) cases, the undisclosed income of almost Rs 11,010 crore has been discovered.

Representation on 10 issues relating to GST

Undisclosed credits totaling Rs 20,078 crore and Rs 246 crore have been discovered in the Panama Papers and Paradise Papers disclosures, respectively.