Start with section 44AB turnover
The ordinary business turnover ceiling under section 44AB is Rs. 1 crore. It can increase to Rs. 10 crore where cash receipts are no more than 5% of total receipts and cash payments are no more than 5% of total payments. Both limbs must be tested using evidence across the business, not assumed from the fact that exchange trades settle digitally.
For derivatives, use the ICAI absolute-difference method described in our F&O turnover guide, not notional contract value.
Then test section 44AD separately
Section 44AD eligibility has its own limits: ordinarily Rs. 2 crore, increased to Rs. 3 crore where cash receipts do not exceed 5%. Presumptive rates are generally 6% for qualifying digital receipts and 8% otherwise. Eligibility also depends on taxpayer and business conditions, not just turnover.
If an eligible taxpayer declares section 44AD income and then opts out within the following five assessment years, section 44AD(4) can prevent use of the scheme for five assessment years. Under section 44AD(5), read with section 44AB(e), lower declared profit plus total income above the basic exemption limit can create an audit path.
Do not use these shortcuts
- "There is a loss, therefore audit is mandatory."
- "Turnover is below Rs. 10 crore, therefore no audit."
- "All broker settlements are digital, therefore the whole-business 5% tests pass."
- "The current year did not use 44AD, therefore history is irrelevant."
- "Total income is zero because it was not entered."
Evidence for the CA's decision
| Question | Useful evidence |
|---|---|
| Correct F&O and intraday turnover? | All broker Tax P&L reports and turnover workings |
| 5% cash conditions met? | Receipts/payments ledger and bank/cash records for all business activity |
| 44AD lock-in active? | Prior-year returns and computation history |
| Total income above basic exemption? | Complete income computation; the FY 2025-26 new-regime basic exemption is Rs. 4 lakh |
| Profit below presumptive rate? | Final business P&L and the CA's legal analysis |
AY 2026-27 timeline
The current statutory date for furnishing Forms 3CA/3CB with Form 3CD is 30 September 2026; the audit-case ITR is due 31 October 2026. Any CBDT extension issued later controls. Form 26 does not replace these reports for AY 2026-27: it applies under the Income-tax Act, 2025 from TY 2026-27, with the first due date in 2027.
Frequently asked questions
Does every F&O loss require a tax audit?
No. A loss by itself is not a universal audit trigger. The answer depends on section 44AB, turnover, cash tests, section 44AD eligibility and history, declared profit, total income, and the taxpayer's complete facts.
Is the tax-audit threshold always Rs. 10 crore?
No. The ordinary business threshold is Rs. 1 crore. The enhanced Rs. 10 crore threshold applies only when both cash receipts and cash payments do not exceed 5% of their respective totals.
Can a low-turnover trader still require audit?
Potentially. A taxpayer caught by the section 44AD(4) five-year lock-in who declares lower profit and meets section 44AD(5), read with section 44AB(e), may require audit even at low turnover.