Tax audit for F&O and intraday trading, AY 2026-27 – when it actually applies, and how turnover is really computed.
Most traders worry about audit for the wrong reasons. Turnover is NOT contract value, a loss does NOT force an audit, and because broker-settled trades are fully digital, the Rs 10 crore limit – not Rs 1 crore – is usually the one that matters.
Step 1 – compute turnover the Guidance Note way
For F&O (a normal, non-speculative business), turnover is the sum of the ABSOLUTE values of profits and losses on all trades settled during the year – favourable and unfavourable differences added together, sign ignored. Premium received on options sold is included only where it is not already part of the trade result. Contract value is never the measure.
| Example (year of trades) | Amount |
|---|---|
| Total of profits on profitable F&O trades | Rs 12,00,000 |
| Total of losses on loss-making F&O trades (absolute) | Rs 9,00,000 |
| F&O turnover for 44AB | Rs 21,00,000 (net P&L is only Rs 3,00,000 profit) |
Intraday equity is a SPECULATIVE business but its turnover works the same way – absolute profits plus absolute losses. Keep the two businesses separate in the P&L (loss set-off rules differ) but AGGREGATE both turnovers with any other business turnover for the 44AB limit test.
Step 2 – apply the 44AB limits (the 10 crore reality)
Business audit triggers at turnover above Rs 1 crore – but the limit rises to Rs 10 crore where BOTH cash receipts and cash payments are 5% or less of the totals. F&O settlements run entirely through the broker and bank, so a pure trader effectively always qualifies for the Rs 10 crore limit. In practice: an F&O turnover of Rs 21 lakh, Rs 2 crore or even Rs 8 crore needs NO audit under 44AB(a).
Where traders DO get caught
| Trigger | What happens |
|---|---|
| Turnover above Rs 10 crore | Audit under 44AB(a) – Form 3CB + 3CD by 30 September 2026, ITR by 31 October 2026. |
| 44AD exit lock – 44AB(e) | You declared F&O income under 44AD earlier, then declared lower/normal income within the next 5 years. If total income exceeds the basic exemption, audit applies IRRESPECTIVE of turnover – this is the trap that catches small traders. |
| Mixed activity aggregation | F&O turnover ADDS to your other business turnover for the limit test – a Rs 6 crore business plus Rs 5 crore F&O turnover crosses Rs 10 crore. |
Step 3 – if audit applies (or you opt for presumptive)
Where 44AB does apply, the report goes in Form 3CB + 3CD (as amended from 1 April 2025) by 30 September 2026 – our clause-wise 3CD checklist Excel runs the file from engagement to sign-off. Books under 44AA and the trading P&L with the turnover working become the core working papers.
Alternatively, an eligible trader (resident individual/HUF/firm, F&O turnover up to Rs 3 crore with digital receipts) can declare 6% of turnover under 44AD and skip both books and audit – but remember the five-year lock-in: exit 44AD early and 44AB(e) audit exposure follows whenever income exceeds the basic exemption. Also plan advance tax – trading income has no TDS, so the June/September/December/March instalments fall on you (interest under 234B/234C otherwise).
Trading income plus audit season – get it managed
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