Reference

Every figure, and what it actually rests on

A workpaper is only as reviewable as its conventions are visible. Each convention below is labelled with its real standing: a provision of the Act, a notified form, ICAI guidance, a prevailing practitioner convention where the law is silent, or a rule of this tool.

Scope: ITR FNO produces automated, source-linked workpapers for CA review. It is not an e-filing service, legal opinion, tax audit, or substitute for your chartered accountant. Your CA decides the tax position and files the return.

Last reviewed 2 August 2026. AY 2026-27 content remains subject to later official notifications.

Why the label matters more than the rule

Set in the same typeface, a section of the Income-tax Act and a treatment the profession happens to have settled on look identical. They are not. One can be read; the other is a reasonable position a different chartered accountant may decline to take. Flattening that difference is how a tool turns an open question into a figure a reader believes is closed.

So every convention this engine applies is recorded with its tier, and the tier is printed beside it. Where the standing is weak, saying so is the point. The gross-receipts reading, the equity-charge allocation and the opening-capital basis below are conventions, not law, and they are marked as such.

This page describes what the engine applies to arrive at a working. It does not decide a tax position, and it does not conclude whether an audit applies. Those remain with the chartered accountant who reviews and signs.

The conventions at a glance

Convention	Standing
F&O turnover	ICAI guidance — ICAI Guidance Note on Tax Audit under section 44AB of the Income-tax Act, 1961, 8th edition (2022), para 5.10 — as carried into the 2023 revision
Option sale premium is excluded from turnover	ICAI guidance — revision effective for practitioners from 2022-08-01; ICAI Guidance Note on Tax Audit under section 44AB of the Income-tax Act, 1961, 8th edition (2022), para 5.10 — as carried into the 2023 revision
Exchange-traded derivatives are non-speculative business	Statute — proviso (d) to section 43(5), Income-tax Act, 1961 (eligible derivative transactions on a recognised stock exchange are excluded from the definition of a speculative transaction)
Intraday equity is speculative business	Statute — section 43(5), Income-tax Act, 1961 (a contract settled otherwise than by actual delivery), read with sections 73 and 73(4)
Delivery equity is treated as capital gains	CBDT — Circular No. 6/2016 dated 29 February 2016 (the assessee's stated treatment of listed shares as capital assets is to be accepted, provided it is applied consistently in later years)
Section 44AB turnover thresholds	Statute — section 44AB(a) and its proviso, Income-tax Act, 1961
The 5% cash test	Statute — first and second provisos to section 44AB(a), Income-tax Act, 1961
Section 44AD eligibility and its lock-in	Statute — section 44AD(1), (4) and (5) read with section 44AB(e), Income-tax Act, 1961
The four AY 2026-27 Trading Account fields	CBDT — the ITR-3 form as notified for assessment year 2026-27, Part A Trading Account
Brokerage, exchange and statutory charges	Statute — section 37(1) for expenditure laid out wholly and exclusively for the business, and section 36(1)(xv) for securities transaction tax
Splitting equity-segment charges	Prevailing practitioner convention — no provision or notified form prescribes an allocation basis, and Zerodha-format statements do not report the split
"Gross receipts" in the no-account profit-and-loss item	Prevailing practitioner convention — the notified form does not define the term for a derivatives business, and published guidance divides
Opening capital where there is no prior balance sheet	Prevailing practitioner convention — a first-year ITR-3 filer moving from ITR-1 or ITR-2 has no prior balance sheet to carry forward, and no rule prescribes the substitute
Cash and bank balance	House rule — the figure is outside every document the engine is given
Never plug a gap	House rule — this tool's operating discipline, carrying no external authority

15 conventions, grouped below by what each one stands on, strongest first.

Statute

A provision of the Income-tax Act, 1961. The wording is public and a reviewer can read it directly.

Exchange-traded derivatives are non-speculative business

Futures and options settled on a recognised stock exchange are treated as ordinary, non-speculative business income. Their results go to the F&O lines of the Part A Trading Account and their losses carry the eight-year set-off and carry-forward treatment of a normal business loss.

Standing: Statute — proviso (d) to section 43(5), Income-tax Act, 1961 (eligible derivative transactions on a recognised stock exchange are excluded from the definition of a speculative transaction)

For the reviewer: The exclusion depends on the transaction meeting the conditions in the proviso, including that it is carried out on a recognised stock exchange. Off-exchange or unrecognised-venue activity is outside it.

Intraday equity is speculative business

Equity bought and sold the same day without delivery is a speculative transaction, kept in its own pair of Trading Account fields and never merged with the F&O result. A speculative loss can be set off only against speculative income and carries forward for four years, so combining the two segments changes the answer even when the total is identical.

Standing: Statute — section 43(5), Income-tax Act, 1961 (a contract settled otherwise than by actual delivery), read with sections 73 and 73(4)

Section 44AB turnover thresholds

Business turnover is tested against Rs 1 crore, raised to Rs 10 crore where the cash test below is satisfied. The workpaper shows the turnover, the threshold applied and the arithmetic that connects them.

Standing: Statute — section 44AB(a) and its proviso, Income-tax Act, 1961

For the reviewer: Turnover alone frequently does not decide the question. The section 44AD(4)/(5) route reaches section 44AB(e) at low turnover, and turnover must be aggregated across every business and every broker the client used. The applicability conclusion is the signing chartered accountant's.

The 5% cash test

The Rs 10 crore ceiling applies only where cash receipts and cash payments are EACH within 5% of the respective totals. Exchange-settled trading is banked end to end, so the test is usually satisfied — but the workpaper takes it as an explicit input from the CA rather than assuming it, because the client's other businesses and non-trading receipts are not visible in a broker file.

Standing: Statute — first and second provisos to section 44AB(a), Income-tax Act, 1961

For the reviewer: Both legs must hold independently. Satisfying the receipts leg alone does not raise the ceiling.

Section 44AD eligibility and its lock-in

Presumptive eligibility is tested against Rs 2 crore, or Rs 3 crore where the 5% cash condition holds, at 6% on banked receipts and 8% otherwise. Where the client declared presumptively in any of the five preceding years and now declares below the presumptive rate, the section 44AD(4) lock-in engages and, once total income exceeds the basic exemption limit, section 44AB(e) requires an audit regardless of turnover.

Standing: Statute — section 44AD(1), (4) and (5) read with section 44AB(e), Income-tax Act, 1961

For the reviewer: Neither the five-year presumptive history nor the client's total income can be read from a broker statement. Both are CA inputs. Left unsupplied, the exemption-limit leg evaluates at zero and reads as 'not exceeded', which for a salaried client is almost always wrong — the workpaper raises this as a flag rather than resting a conclusion on it.

Brokerage, exchange and statutory charges

Brokerage, exchange transaction charges, clearing charges, SEBI turnover fees, stamp duty and GST on those charges are treated as business expenditure of the trading business and deducted in arriving at net profit. Securities transaction tax is deducted where the income from the taxable securities transactions is itself business income.

Standing: Statute — section 37(1) for expenditure laid out wholly and exclusively for the business, and section 36(1)(xv) for securities transaction tax

For the reviewer: Section 36(1)(xv) is available only when the related income is chargeable under 'Profits and gains of business or profession'. STT on delivery trades returned as capital gains is not deductible under it.

CBDT

A notified form, rule or circular of the Central Board of Direct Taxes. Binding on the department and the reason a particular disclosure field exists.

Delivery equity is treated as capital gains

Gains and losses on delivered listed shares are placed in Schedule CG and kept out of business turnover. Where a client's records show delivery trades, the workpaper says so rather than absorbing them silently.

Standing: CBDT — Circular No. 6/2016 dated 29 February 2016 (the assessee's stated treatment of listed shares as capital assets is to be accepted, provided it is applied consistently in later years)

For the reviewer: Consistency is the condition. If this client has previously returned delivery trades as business income, or the CA is treating them that way this year, those figures must be moved into the trading account by hand. The engine raises a review flag; it does not choose.

The four AY 2026-27 Trading Account fields

F&O turnover, F&O income, intraday turnover and intraday income are filled as four separate figures in Part A of the notified ITR-3, each pointed back at the broker sheet and row it came from.

Standing: CBDT — the ITR-3 form as notified for assessment year 2026-27, Part A Trading Account

For the reviewer: AY 2026-27 is the final assessment year under the Income-tax Act, 1961. Content on this site remains subject to later official notifications.

ICAI guidance

The ICAI Guidance Note on Tax Audit. This is what a tax auditor works to, and it is persuasive rather than statutory — it has been revised before, and the 2022 revision changed the turnover formula outright.

F&O turnover

Turnover for a section 44AB analysis is the sum of the ABSOLUTE favourable and unfavourable differences on settled futures and options positions. A losing trade adds to turnover exactly as a winning one does, which is why a loss-making year can still cross a threshold. It is not the notional value of the contracts and it is not net profit.

Standing: ICAI guidance — ICAI Guidance Note on Tax Audit under section 44AB of the Income-tax Act, 1961, 8th edition (2022), para 5.10 — as carried into the 2023 revision

For the reviewer: Persuasive professional guidance, not a provision of the Act. It has been revised before and the current wording dates from the 2022 revision.

Option sale premium is excluded from turnover

The 2022 revision removed premium received on sale of options from F&O turnover. Turnover is now the sum of absolute favourable and unfavourable differences alone.

Standing: ICAI guidance — revision effective for practitioners from 2022-08-01; ICAI Guidance Note on Tax Audit under section 44AB of the Income-tax Act, 1961, 8th edition (2022), para 5.10 — as carried into the 2023 revision

For the reviewer: The superseded formula added gross premium received on sale of options on top of the absolute difference. For an option writer that term can be many multiples of the difference itself, so a figure computed the old way can place a trader above an audit threshold they are nowhere near. Broker blogs, video explainers and older articles still teach the old formula confidently. If a turnover figure arrives from elsewhere and disagrees with the workpaper, this is almost always why.

Prevailing practitioner convention

The Act and the notified forms do not settle the point. The treatment below is the one commonly applied, not a rule. A chartered accountant may reasonably take a different view, and the workpaper raises the point rather than deciding it.

Splitting equity-segment charges

Where a broker reports one combined charge figure covering both intraday (business) and delivery (capital gains) trades, the workpaper does NOT invent a split. The combined amount is excluded from the profit-and-loss computation and raised as a review item naming the exact rupee amount to be allocated.

Standing: Prevailing practitioner convention — no provision or notified form prescribes an allocation basis, and Zerodha-format statements do not report the split

For the reviewer: Turnover-proportionate and trade-count-proportionate allocations are both defensible and give different answers. Choosing one silently would bury a judgment call inside a subtotal, so the choice stays with the reviewer.

"Gross receipts" in the no-account profit-and-loss item

The gross-receipts line is filled with ICAI-method turnover, so it agrees with the Part A Trading Account figures elsewhere in the same return. The alternative reading — total sale value — is recorded as an open item rather than silently rejected.

Standing: Prevailing practitioner convention — the notified form does not define the term for a derivatives business, and published guidance divides

For the reviewer: For an option writer the two readings differ by orders of magnitude. Whichever the firm adopts must be applied consistently across the return, because an internal disagreement between the trading-account fields and the profit-and-loss item is exactly what a processing check looks for.

Opening capital where there is no prior balance sheet

Opening capital is derived from the broker account alone, and the basis used is recorded on the face of the workpaper. Where the client filed ITR-3 for the preceding year, the closing capital in that return is authoritative and should replace the derived figure.

Standing: Prevailing practitioner convention — a first-year ITR-3 filer moving from ITR-1 or ITR-2 has no prior balance sheet to carry forward, and no rule prescribes the substitute

For the reviewer: The derived opening figure is a starting point for the reviewer to confirm or replace, not a carried-forward balance.

House rule

How this tool behaves. It carries no external authority and is stated here only so a reviewer knows what the engine did and did not do.

Cash and bank balance

A broker statement cannot evidence the client's cash and bank position, so the balance-sheet cash line is left at zero and raised as a blocker naming the date the balance is needed as at.

Standing: House rule — the figure is outside every document the engine is given

Never plug a gap

No figure is ever entered to make a statement tally. Where the records do not support a number, the line stops and becomes a flag naming what is missing and what would resolve it. Unexplained movement in the broker account is reported as unexplained, not split between capital introduced and drawings on an assumption.

Standing: House rule — this tool's operating discipline, carrying no external authority

For the reviewer: A balance sheet that tallies because something was assumed is worse than one that openly does not, because the assumption is invisible by the time anyone reviews it. An unsupported figure becomes a flag precisely so that it stays visible: a flag is an item a reviewer closes, whereas a plug is a claim nobody knows was made.

Where this shows up in the working

Each figure in the workpaper names the broker sheet and row it came from, or states its derivation. Where a convention above leaves a choice open, the working carries a flag naming the amount and the decision, rather than resolving it quietly. Read the turnover method in full, the section 44AB analysis, or a finished sample working.

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