Tax Audits and Turnover Calculation for Traders

A tax audit is an examination of your business accounts by an eligible accountant, who then files a prescribed report. Which law applies depends on the income year of the accounts, not on the date you file.

Financial Year (FY) 2025–26 runs from 1 April 2025 to 31 March 2026. Its Assessment Year (AY) 2026–27 filing stays under the Income-tax Act, 1961: books under section 44AA, the presumptive scheme under section 44AD and audit under section 44AB. Filing the report after 1 April 2026 does not move that income into the new Act.

Tax Year (TY) 2026–27 runs from 1 April 2026 to 31 March 2027 under the Income-tax Act, 2025, with sections 62, 58 and 63. Some conditions change, so these are more than new section numbers. The lesson is Indian tax education and is written for readers in any country.

Turnover is the size of your business activity. Profit is the signed result. For closed derivative trades, ICAI’s public final Revised 2025 Guidance Note adds up the favourable and unfavourable differences by their absolute amounts. Work from the completed positions. Do not take the absolute value of your annual net profit.

Our example has four independent cash-settled futures positions, each opened and closed within the year. The results exclude charges and are completed positions, not daily mark-to-market entries.

Option reports need care, because premium columns and result columns can differ. An option report may show premiums paid, premiums received, trade results and charges in separate columns. First find out what its “P&L” includes. The final Revised 2025 guidance includes premium received on option sales, and says that where premium determines net profit, “such net profit should not be separately included”. That is about net profit. It is not an instruction to leave premium out.

Two separate cash-settled option positions show the cash-flow arithmetic before charges. The long gains ₹4,000 and the short loses ₹3,000. Their ₹7,000 total of absolute results is a working subtotal, not a final audit-turnover answer.

Both cash tests must pass. The higher ordinary audit threshold needs two separate conditions: cash receipts at most 5% of all relevant amounts received, and cash payments at most 5% of all relevant payments. A good receipts ratio cannot make up for a failing payments ratio.

For an ordinary business, audit applies when turnover is above ₹1 crore. The limit rises to ₹10 crore only when both cash conditions pass. Sections 44AB(a) and 63(1), Table row 1, keep this structure for their own income years.

Presumptive taxation sets eligible income at prescribed rates. Old section 44AD covers qualifying resident individuals, Hindu undivided families and non-LLP partnerships, with some activities excluded. Its ₹2 crore ceiling becomes ₹3 crore when the receipts-only cash condition passes. Income is 6% for timely banking or electronic receipts and 8% for the rest, or a higher claimed profit. These ceilings differ from the ordinary audit thresholds.

For FY 2025–26, sections 44AD(4) and (5) and 44AB(e) link earlier use of the scheme, and leaving it within the five-year period, with income above the maximum amount not chargeable to tax. A loss, or a profit below 6% or 8%, is not by itself that old-law trigger.

For TY 2026–27, section 58 keeps the eligibility, deemed-profit and prior-use conditions and adds one more. Section 58(3) covers profit below the deemed amount when total income is above the maximum amount not chargeable to tax. We read the section on the Income Tax Department site on 6 November 2026. Section 63(1), Table row 2, separately covers lower deemed profits and does not repeat that income condition in its own words.

The two provisions interact, so review them on your actual facts. Do not conclude that you are exempt only because you never used the scheme, or because your income is below the basic exemption limit, which is not the same as the tax-rebate ceiling. Give your professional your earlier returns and scheme elections with the current working.

Yes. Keeping books is a separate duty from audit. Old section 44AA and new section 62 use income and turnover thresholds, a look at the three preceding years, and likely thresholds for a new business. For an individual or HUF, ordinary business needs books when income is above ₹2.5 lakh or turnover or gross receipts above ₹25 lakh. Other persons use ₹1.2 lakh and ₹10 lakh. Some presumptive-related cases add to this.

Your books should let someone work out taxable income reliably. Keep the trade identity, year-end positions, receipts, payments and supported costs. A broker screenshot alone does not explain a year of business.

How long you keep them depends on the rule that governs. The old Rule 6F six-year rule is for specified-profession records, not F&O business in general. Under notified Rule 46, covered business records are kept for seven tax years from the end of the relevant tax year, longer for reopened assessments until they finish. Covered electronic books also need India accessibility and backups, so confirm your arrangement with your accountant.

Give your accountant everything for the same income period, from every broker. That means trade-wise tax reports, contract notes, the funds ledger, charges and year-end open positions, plus bank statements, business invoices and earlier returns. Keep futures, options, intraday equity, delivery-business stock and investment holdings identifiable, because each is calculated its own way.

The audit report and the income-tax return are two separate submissions. CBDT Circular 07/2026, dated 28 September 2026, moved the covered AY 2026–27 audit-report date to 21 October 2026 and the return date to 21 November 2026. It covers the non-transfer-pricing audit category in row 2, and does not extend every taxpayer’s deadline.

The old penalty and the new fee are different provisions, so start with the income year. For FY 2025–26 (AY 2026–27), section 271B of the 1961 Act allows a penalty of 0.5% of sales, turnover or gross receipts, capped at ₹1,50,000. Section 273B protects you if you prove reasonable cause. The ceiling is not an automatic bill, and the facts and process matter.