An Assessee is liable to get his Tax Audit done by a Chartered Accountant mandatorily, if in the previous year,

  1. The Person is carrying on business and his Total Sales/Turnover exceeds rupees one crore (from 1.4.12)
  2. The Person is carrying on Profession, and his Gross Receipts exceeds rupees twenty five lakhs (from 1.4.12)

The Due Date of filing the Tax Audit Report under Section 44AB is 30th of Sep of the Assessment Year. However, for AY 2014-15 the due date for filing Tax Audit Report has been extended from 30th Sept 2014 to 30th Nov 2014.

There are confusions in respect of tax audit applicability u/s 44AB for share transactions. There are two types of transactions in share trading by business/individual.

  1. For investment/Trading purposes.(Delivery Based)
  2. For speculation purposes.(Mostly non-delivery based with few delivery based transactions)

Case 1: Delivery based transactions : Where the transaction for the purchase or sale of any commodity including stocks and shares is delivery based whether intended or by default, the total value of the sale is to be considered as turnover. So if the turn-over exceeds one crore, then tax audit is necessary.

Case 2:Speculative transactions : A speculative transaction means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically settled otherwise than by the actual delivery or transfer of the commodity or scripts in most cases. Thus, in a speculative transaction, the contract for sale or purchase which is entered into is not completed by giving or receiving delivery so as to result in the sale as per value of contract note. The contract is settled otherwise and squared up by paying out the difference which may be profitable or loss. As such, in such transaction the difference amount i.e. profit or loss are termed as ‘turnover’. In the case of an assessee doing speculative transactions there can be both positive and negative difference arising by settlement of various such contracts during the year. Each transaction resulting into whether a positive(profit) or negative difference(loss) is an independent transaction. In such transactions though the contract notes are issued for full value of the purchased or sold asset the entries in the books of account are made only for the differences. Accordingly, the aggregate of both positive and negative differences(total of profit and total of loss) is to be considered as the turnover of such transaction for determining the liability to audit vide section 44 AB.

In the same way, Derivatives, futures and options, transactions are completed without the delivery of shares or securities. These are also squared up by payment of differences. The contract notes are issued for the full value of the asset purchased or sole but entries in the books of account are made only for the differences. The transactions may be squared up any time on or before the striking date. The buyer of the option pays the premia. The turnover in such types of transactions is to be determined as follows:

The total of profit and loss separately to be totaled in two groups and shall be taken as turnover.


8 thoughts on “TAX AUDIT U/S 44AB – Share/Stock/Commodity TRANSACTIONS- APPLICABILITY

  1. Dear Sir,

    Very informative but what I do not agree feel is if the sale and purchase is in the nature of business. then 44 AB will apply. But an assessee is not into the regular trading of goods and do it part time, then this section is not applicable.

    Please advise and trace the necessary case law, ruling, section, rule.


  2. I have been doing share trading on daily basis, i buy every day and sell every day. whatever i am able to see on same day ,i sell it and whatever is left over sell it next day or in coming days depending on when i get good price. though intention is to sell them asap like in 1 or 2 days and similarly i keep on buying selling everyday without intention of taking their delivery. please tell me
    1. whether i need get my accounts audited ? how is turnover calculated in case of audit ? income or loss will be speculative or stcg?

  3. I have a shop with turnover is 50lacs composition section and I also trading in share mkt with turnover is more than 1 cr intra day and delivery base both
    Should I audit my trading account or not

  4. If a person carries on share trading but doesn’t deducts expenses from income from share trading. does he still needs to get his accounts audited if his turnover exceeds 1.00 crore. i.e. he doesn’t shows share trading as business.

    1. If share trading is not shown as a business then no need to get accounts audited. Because in such case capital gain tax is to be calculated, thus no need of turnover

  5. Sir, thank you for your insights. But could you please give the section reference whereby the calculation of turnover for tax audit is classified differently for delivery based and non delivery based trading ?

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s