Tax Audit Applicability for F&O, Intraday, Commodities & Capital Gains – AY 2025–26

The Legal Framework

• Section 44AB – Tax audit is mandatory if turnover/profit conditions are breached.

• Section 44AD – Presumptive scheme for small businesses (≤₹2 crore turnover), but NOT available for:

  • Derivatives (F&O, commodities, currency)

  • Intraday equity

  • Agency / commission / brokerage

• Capital Gains – Always taxed under “Capital Gains” head; never trigger 44AB audit.

• Section 44AA – Even if audit not applicable, books of account are compulsory for F&O, intraday, and commodities.

Turnover Rules (CBDT / ICAI Guidance)

• F&O / Commodities / Currency – Turnover = absolute value of profit/loss (positive + negative) + option premiums.

• Intraday Equity – Turnover = absolute value of profit/loss on squared-up trades.

• Capital Gains – No turnover concept; taxable separately.

Example:

• F&O Profit ₹8L + F&O Loss ₹12L → Turnover = ₹20L.

• Intraday Profit ₹3L + Loss ₹5L → Turnover = ₹8L.

The Audit Thresholds

Turnover	Digital Transactions	Audit Applicability
≤ ₹2 crore	Any %	Audit if: (a) Profit <6% (8% for cash) and TI > exemption, OR (b) Loss and TI > exemption.
₹2–10 crore	≥95% digital	❌ No audit (profit %, loss, or TI irrelevant).
₹2–10 crore	<95% digital	✅ Audit compulsory.
> ₹10 crore	Irrespective	✅ Audit compulsory.

Decision Path (Law + Practical Guide)

Step 1: Identify head of income

• Only Capital Gains → ❌ Audit not applicable.

• Business income (F&O, Intraday, Commodities) → Go to Step 2.

Step 2: Compute turnover as per ICAI guidance.

Step 3: Apply turnover slab test:

• ₹10 crore → ✅ Audit compulsory.

• ₹2–10 crore → Check digital % (≥95% → ❌ No audit; <95% → ✅ Audit).

• ≤ ₹2 crore → Apply presumptive test:

  • Profit ≥6% → ❌ No audit.

  • Loss or Profit <6% AND TI > exemption → ✅ Audit.

  • Loss with TI ≤ exemption → ❌ No audit.

Scenario Illustrations

Case 1 – Small F&O Trader (Loss + Salary)

• Turnover: ₹1.5 crore

• Loss: ₹5 lakh

• Salary income: ₹20 lakh

• TI > exemption + loss → ✅ Audit required.

Case 2 – Intraday Profits Above 6%

• Turnover: ₹90 lakh

• Profit: ₹8 lakh (≈8.9%)

• TI = Profit only

• Profit ≥6% → ❌ No audit.

Case 3 – Commodity Trader – Digital Route

• Turnover: ₹4.2 crore

• Profit: 2%

• Digital transactions: 97%

• Between ₹2–10 crore, ≥95% digital → ❌ No audit.

Case 4 – Commodity Trader – Cash Heavy

• Turnover: ₹4.2 crore

• Profit: 2%

• Digital transactions: 80%

• Between ₹2–10 crore, <95% digital → ✅ Audit required.

Case 5 – Only Capital Gains

• LTCG: ₹25 lakh

• STCG: ₹10 lakh

• No business income

• Capital Gains → ❌ No audit.

Compliance Matrix

Case	Turnover	Profit %	Other Income	Digital %	Audit?	Reason
F&O loss only	1.5 cr	Loss	Nil	100%	❌	TI ≤ exemption
F&O loss + Salary ₹20L	1.5 cr	Loss	20L	100%	✅	TI > exemption
Intraday profit	90L	7%	Nil	100%	❌	Profit ≥6%
Intraday profit	90L	5%	12L	100%	✅	Profit <6%, TI > exemption
Commodities	4.2 cr	3%	Nil	97%	❌	Digital ≥95%
Commodities	4.2 cr	3%	Nil	80%	✅	Digital <95%
Capital Gains only	–	–	25L	–	❌	CG outside audit scope

Judicial & Regulatory Insights

• CBDT Circular No. 10/2017 – Prescribes turnover rules for derivatives.

• ICAI Guidance Note on Tax Audit (2023 Edition) – Absolute profit/loss method confirmed.

• CIT v. Surinder Kaur (2018, P&H HC) – Capital gains cannot be equated with business turnover; audit not applicable.

Compliance Takeaways

• Audit triggers:

  • Turnover > ₹10 crore.

  • Turnover ≤ ₹2 crore with profit <6% (or loss) + TI > exemption.

  • Turnover 2–10 crore with <95% digital.

• No audit cases:

  • Capital gains, irrespective of amount.

  • F&O/Intraday/Commodities with turnover ≤2 crore, profit ≥6%, TI ≤ exemption.

  • 2–10 crore turnover with ≥95% digital.

• Books of Account: Even if audit not required, F&O/Intraday/Commodity traders must maintain books under Section 44AA.