For FY 2024-25 (AY 2025-26): An audit becomes mandatory when net business profit falls below 6 percent of total turnover. This encompasses both speculative and non-speculative activities, excluding salary income, capital gains, and other sources. Consequently, obtaining audited accounts may become necessary when trading as a business generates losses or insufficient profits.
Audit Triggers for FY 2024-25:
Turnover exceeds Rs 5 crore (for digital/online businesses including stock trading)
Profits less than 6% of turnover (under Section 44AD) when:
Turnover is below Rs 5 crore, AND
Profits are less than 6% of turnover, AND
Total income exceeds basic exemption limit (Rs 4 lakh under new regime)
Understanding that turnover below Rs 5 crore (increased from Rs 2 crore from FY 2019-20 onwards for digital transactions) with profits under 6 percent of turnover does not mandate an audit if total tax liability for the year equals zero proves crucial.
Exemption from Audit under Section 44AD:
If your circumstances are:
Trading turnover: Less than Rs 5 crore
Profits: Less than 6% of turnover
Total income (all sources combined): Less than Rs 4 lakh (under new tax regime)
Then audit is NOT required even with low profits, as total tax liability is nil.
Important Clarification for FY 2024-25:
Section 44AD audit requirement looks at business profits excluding capital gains. Here’s how to determine if audit is needed:
Step 1: Calculate Trading Turnover (as per methods discussed in turnover chapter)
Step 2: Calculate Business Profit (speculative + non-speculative)
Step 3: Check Profit Percentage = (Business Profit ÷ Turnover) × 100
If profit percentage < 6% and turnover < Rs 5 crore:
Check total income from all sources
If total income < Rs 4 lakh (new regime): No audit needed
If total income ≥ Rs 4 lakh (new regime): Audit required
Example for FY 2024-25:
Scenario A: Audit Required
Trading turnover: Rs 3,50,00,000
Business profit: Rs 18,00,000 (5.14% of turnover)
Salary income: Rs 6,00,000
Total income: Rs 24,00,000
Analysis:
Turnover < Rs 5 crore ✓
Profit % < 6% ✓
Total income > Rs 4 lakh ✓
Result: AUDIT REQUIRED
Scenario B: Audit Not Required
Trading turnover: Rs 2,80,00,000
Business loss: Rs 5,00,000
Salary income: Rs 3,50,000
Total income: Rs 3,50,000 (loss adjusted)
Analysis:
Turnover < Rs 5 crore ✓
Loss (profit < 6%) ✓
Total income < Rs 4 lakh ✓
Result: AUDIT NOT REQUIRED
Scenario C: Audit Required Due to Turnover
Trading turnover: Rs 6,20,00,000
Business profit: Rs 52,00,000 (8.39% of turnover)
Even though profit > 6%, turnover > Rs 5 crore
Result: AUDIT REQUIRED
Nevertheless, submitting returns with audit when losses prove substantial represents prudent practice even if not technically required, as it:
Provides credibility to the losses claimed
Facilitates loss carry forward without future questions
Demonstrates proper compliance intent
Reduces scrutiny risk in subsequent years
When declaring trading as business income, ITR-3 must be utilised for filing FY 2024-25 returns. The methodology applying to other businesses requires implementation—creating and maintaining proper records:
Balance Sheet
Profit & Loss statement
Books of Accounts
As previously stated, turnover of Rs 5 crore or less combined with profits below 6 percent of total turnover necessitate auditing (subject to total income threshold). Individuals engaged exclusively in trading find creating balance sheets, P&L statements, and maintaining books of account relatively straightforward. The process receives detailed explanation below.
Preparing Financial Statements and Accounting Records
Balance Sheet Construction
A personal balance sheet provides comprehensive oversight of financial position at any particular moment. It summarises assets, liabilities, and net worth (assets minus liabilities).
For FY 2024-25 (preparing for AY 2025-26 filing): Creating a balance sheet as of 31st March 2025 proves fairly straightforward. First, gather this information:
Documents needed:
Bank statements as of 31st March 2025 (all accounts)
Loan statements showing outstanding balance as of 31st March 2025
Home loan statement
Personal loan statements
Vehicle loan statements
Demat holding statement as of 31st March 2025
Investment statements (mutual funds, bonds, etc.)
Property documents (for valuation)
Vehicle registration documents
Once this information becomes available, develop the balance sheet by listing all assets (financial and tangible) with respective values as of 31st March 2025.
| ASSETS (as of 31st March 2025): | |
|---|---|
| Current Assets: | |
| Cash in hand: | Rs ______ |
| Bank balances (savings accounts): | Rs ______ |
| Bank fixed deposits: | Rs ______ |
| Trading account balance (with broker): | Rs ______ |
| Debtors/receivables | Rs ______ |
| Investments: | |
| Equity shares (at cost): | Rs ______ |
| Mutual funds (at cost): | Rs ______ |
| Bonds/debentures (at cost): | Rs ______ |
| Gold/jewellery (at cost): | Rs ______ |
| Fixed Assets: | |
| Property/real estate (at cost + improvements): | Rs ______ |
| Motor vehicles (at written down value after depreciation): | Rs ______ |
| Computers & equipment (at written down value): | Rs ______ |
| Furniture & fixtures (at written down value): | Rs ______ |
| Other Assets: | |
| Loans given to others: | Rs ______ |
| Security deposits: | Rs ______ |
| Prepaid expenses: | Rs ______ |
| TOTAL ASSETS: | Rs ______ |
Important Note on Asset Valuation for FY 2024-25:
Investments: Shown at cost, not market value (conservative accounting)
Fixed Assets: Original cost minus accumulated depreciation
Depreciation rates (as per IT Act):
Computers: 40%
Motor vehicles: 15%
Furniture: 10%
Subsequently, examine liabilities, encompassing everything owed as of 31st March 2025:
| LIABILITIES (as of 31st March 2025): | |
|---|---|
| Current Liabilities: | |
| Credit card outstanding: | Rs ______ |
| Short-term loans: | Rs ______ |
| Trading losses (marked to market): | Rs ______ |
| Expenses payable: | Rs ______ |
| Advance tax payable: | Rs ______ |
| Long-term Liabilities: | Rs ______ |
| Home loan outstanding: | Rs ______ |
| Vehicle loan outstanding: | Rs ______ |
| Education loan outstanding: | Rs ______ |
| Other personal loans: | Rs ______ |
| TOTAL LIABILITIES: | Rs ______ |
| NET WORTH CALCULATION: | |
| Net Worth = Total Assets - Total Liabilities | |
| Capital Account (Owner's Equity): | |
| Opening capital (as of 1st April 2024): | Rs ______ |
| Add: Profit for FY 2024-25: | Rs ______ |
| Add: Capital introduced: | Rs ______ |
| Less: Drawings/withdrawals: | Rs ______ |
| Closing capital (as of 31st March 2025): | Rs ______ |
Balance Sheet must balance:
Total Assets = Total Liabilities + Net Worth/Capital
Sample Balance Sheet Format for Trader (FY 2024-25):
| Assets | Amount (₹) |
|---|---|
| Current Assets | |
| Cash in hand | 25,000 |
| Bank Balance - Savings | 3,50,000 |
| Bank Balance - Trading Account | 2,10,000 |
| Fixed Deposits | 5,00,000 |
| Investments | |
| Equity Shares ( at cost) | 8,50,000 |
| Mutual Funds ( at cost) | 3,20,000 |
| Fixed Assets | |
| Computer & Equipment | 1,20,000 |
| Less: Accumlated Depreciation | (48,000) |
| 72,000 | |
| Motor Vehicle | 6,00,000 |
| Less: Accumlated Depreciation | (1,80,000) |
| Other Assets | 4,20,000 |
| Security Deposits | 50,000 |
| Total Assets | 27,97,000 |
| LIABILITIES | |
| Current Liabilities | |
| Credit Card Outstanding | 45,000 |
| Expenses Payable | 25,000 |
| Long-term Liabilities | |
| Home Loan | 15,00,000 |
| Vechicle Loan | 2,50,000 |
| Total Liabilities | 18,20,000 |
| CAPITAL/NET WORTH | |
| Opening Capital (1st April 2024) | 8,50,000 |
| Add: Profit for FY 2024-25 | 1,85,000 |
| Add: Capital Introduced | 50,000 |
| Less: Drawings | (1,08,000) |
| CLOSING CAPITAL | 9,77,000 |
| TOTAL LIABILITIES + CAPITAL | 27,97,000 |
That’s the balance sheet structure. Rather than waiting until each financial year’s conclusion, consider maintaining quarterly updates to track wealth progression.
Profit & Loss Statement Preparation
For FY 2024-25 (AY 2025-26): Profit and loss statements provide an overview of income and expenses for the fiscal year (1st April 2024 to 31st March 2025).
Creating a P&L for FY 2024-25 requires listing all revenues and expenses during this period.
| REVENUE (Income for FY 2024-25): | |
|---|---|
| Trading/Business Income: | |
| Speculative business income (intraday equity): | Rs ______ |
| Non-speculative business income (F&O): | Rs ______ |
| Non-speculative business income (frequent delivery trades): | Rs ______ |
| Capital Gains (reported separately, not in P&L): | |
| STCG from equity delivery: | Rs ______ (reported in ITR, not P&L) |
| LTCG from equity delivery: | Rs ______ (reported in ITR, not P&L) |
| Other Business Income: | |
| Interest received on trading account funds: | Rs ______ |
| Dividend received (if part of trading business): | Rs ______ |
| TOTAL BUSINESS REVENUE: | |
Note: Salary income (if employed elsewhere) is not included in business P&L. It’s reported separately in ITR-3.
| EXPENSES (Business Expenses for FY 2024-25): | |
|---|---|
| Direct Trading Expenses: | |
| Brokerage charges: | Rs ______ |
| STT (Securities Transaction Tax): | Rs ______ |
| Exchange transaction charges: | Rs ______ |
| SEBI turnover fees: | Rs ______ |
| GST on brokerage: | Rs ______ |
| Stamp duty: | Rs ______ |
| Operating Expenses: | |
| Internet charges (proportionate for trading): | Rs ______ |
| Mobile phone charges (proportionate for trading): | Rs ______ |
| Electricity (proportionate if home office): R | Rs ______ |
| Rent (proportionate if dedicated trading room): | Rs ______ |
| Administrative Expenses: | |
| Salary to assistants/staff: | Rs ______ |
| Professional fees (CA, tax consultant): | Rs ______ |
| Advisory/subscription fees: | Rs ______ |
| Trading software subscriptions: | Rs ______ |
| Financial news subscriptions: | Rs ______ |
| Research reports: | Rs ______ |
| Books and periodicals: | Rs ______ |
| Stationery and printing: | Rs ______ |
| Depreciation: | |
| Computer & equipment depreciation: | Rs ______ |
| Furniture depreciation: | Rs ______ |
| Financial Charges: | |
| Interest on capital (if borrowed for trading): | Rs ______ |
| Bank charges: | Rs ______ |
| Other Expenses: | |
| Travel for trading/investment meetings: | Rs ______ |
| Communication expenses: | Rs ______ |
| Office maintenance: | Rs ______ |
| TOTAL EXPENSES: | Rs ______ |
PROFIT CALCULATION:
Net Profit = Total Revenue – Total Expenses
Or if expenses exceed revenue:
Net Loss = Total Expenses – Total Revenue
Sample P&L Statement Format for Trader (FY 2024-25):
| Sample P&L Statement Format for Trader (FY 2024-25): | |
|---|---|
| PROFIT & LOSS STATEMENT For the year ended 31st March 2025 | |
| INCOME/REVENUE | |
| Business Income: | |
| Speculative (Intraday Equity) | 2,85,000 |
| Non-Speculative (F&O Trading) | 4,50,000 |
| Interest on Trading Funds | 12,000 |
| TOTAL INCOME | 7,47,000 |
| EXPENSES | |
| Trading Expenses: | |
| Brokerage | 45,000 |
| STT | 28,000 |
| Exchange Charges | 15,000 |
| Other Transaction Costs | 8,000 |
| 96,000 | |
| Operating Expenses: | |
| Internet & Phone | 18,000 |
| Electricity (proportionate) | 6,000 |
| Rent (proportionate) | 36,000 |
| 60,000 | |
| Professional Expenses: | |
| CA/Tax Consultant Fees | 25,000 |
| Trading Software Subscription | 15,000 |
| Research/Advisory Services | 20,000 |
| Books & Periodicals | 5,000 |
| 65,000 | |
| Depreciation: | |
| Computer Equipment | 18,000 |
| Furniture | 5,000 |
| 23,000 | |
| Other Expenses: | |
| Bank Charges | 3,000 |
| Miscellaneous | 2,000 |
| 5,000 | |
| TOTAL EXPENSES | 2,49,000 |
| NET PROFIT | 4,98,000 |
Reconciliation with Balance Sheet:
The net profit of Rs 4,98,000 from P&L flows to the Balance Sheet:
Added to opening capital
Forms part of closing capital after adjusting for drawings
Important Notes for FY 2024-25:
STT cannot be claimed as expense for capital gains but can be for business income
Proportionate expenses only: If using home internet for both personal and trading, claim only the portion used for trading (typically 30-50%)
Depreciation as per IT Act rates: Must follow prescribed rates, not arbitrary amounts
Maintain bills and vouchers: Keep all supporting documents for expenses claimed
A Balance sheet and Profit & Loss statement together help comprehend net worth changes between two periods and shed light on wealth accumulation. Maintaining financial discipline proves paramount for creating lasting wealth. Staying connected with personal balance sheet and P&L ensures awareness of assets and liabilities.
Books of Accounts/Book-keeping
For FY 2024-25 (AY 2025-26): Maintaining books of accounts and bookkeeping may seem intimidating, but for traders dealing with business income, salary, or both, the process proves remarkably simple: maintain just two primary books.
Many individuals feel intimidated by the prospect, yet no genuine cause for concern exists—especially with modern digital tools and broker-provided statements.
Bank Book
Maintaining a bank book offers substantial benefits. The objective is to track all money inflows and outflows.
For FY 2024-25, maintain:
Download bank statements for all accounts for the period 1st April 2024 to 31st March 2025
Create an Excel spreadsheet with columns:
Date
Description
Debit (money out)
Credit (money in)
Balance
Category (salary/trading profit/trading expense/personal)
Record each transaction with proper categorization
Maintain digital copies of all bills for expenses:
Internet bills
Rent receipts
Purchase invoices for equipment
Professional fee receipts
| Sample Bank Book Format: | |||||
|---|---|---|---|---|---|
| Date | Description | Debit | Credit | Balance | Category |
| 01-Apr-24 | Opening Balance | - | - | 2,50,000 | - |
| 05-Apr-24 | Salary Credited | - | 75,000 | 3,25,000 | Salary |
| 08-Apr-24 | Fund Transfer to Broker | 50,000 | - | 2,75,000 | Trading |
| 12-Apr-24 | Internet Bill | 1,500 | - | 2,73,500 | Expense |
| 15-Apr-24 | Trading Profit Received | 25,000 | 2,98,500 | Trading | |
Important: Maintain separate categorization for:
Personal expenses (not deductible)
Business expenses (deductible)
Capital transactions (affects balance sheet)
Revenue transactions (affects P&L)
Trading Book
For FY 2024-25: Your stock broker bears responsibility for maintaining comprehensive trading records. They must provide:
Shows all trades from 1st April 2024 to 31st March 2025
Breaks down into:
Intraday equity (speculative)
F&O trades (non-speculative)
Delivery-based equity (capital gains)
Includes all charges:
Brokerage
STT
Exchange charges
GST
Stamp duty
Shows cash flow in/out of trading account
Opening balance, deposits, withdrawals, closing balance
Trading profits/losses
Charges deducted
Individual contract note for each trade
Available for download from broker portal
Contains:
Trade date and time
Security name
Quantity
Price
Charges breakdown
Net amount
Shows all equity holdings in demat account
Required for balance sheet preparation
Shows purchase date and price (cost basis)
For FY 2024-25 Filing:
All major stock brokers in India provide:
Downloadable annual tax P&L statement (typically by April-end)
Segregation of speculative vs non-speculative income
Detailed expense breakdown
Digital access to all contract notes
It is generally NOT necessary to maintain physical copies of contract notes unless specifically requested by the IT department during assessment or scrutiny.
What YOU need to do:
Download and save all statements from your broker’s portal before June 2025
Verify the P&L statement for accuracy
Cross-check with your own records of trades
Reconcile trading account balance with bank statements
Maintain backup of all downloaded files in multiple locations
If trading with multiple brokers:
For FY 2024-25: If you’ve traded through more than one stock broker:
Get P&L from each broker separately
Consolidate all trading income/losses in one master statement:
Total speculative income/loss
Total non-speculative income/loss
Total expenses
Ensure no duplication if shares were transferred between brokers
Reconcile with bank – total funds deposited/withdrawn should match
Sample Consolidated Trading Book Summary (FY 2024-25):
| Sample Consolidated Trading Book Summary (FY 2024-25): | |
|---|---|
| TRADING SUMMARY - FY 2024-25 | |
| Broker A: | |
| Speculative Income | 1,25,000 |
| Non-Speculative Income | 2,80,000 |
| Expenses | 42,000 |
| Broker B: | |
| Speculative Loss | (35,000) |
| Non-Speculative Income | 1,95,000 |
| Expenses | 28,000 |
| CONSOLIDATED: | |
| Net Speculative Income | 90,000 |
| Net Non-Speculative Income | 4,75,000 |
| Total Expenses | 70,000 |
| Net Business Profit | 4,95,000 |
Additional Records to Maintain (FY 2024-25):
Capital Gains Records:
Purchase date, price, quantity for all delivery-based equity
Sale date, price, quantity
Holding period calculation
Separate file for LTCG and STCG
Expense Vouchers:
Bills for internet, phone, electricity
Rent receipts (with landlord PAN if rent > Rs 50,000/month)
Professional fee receipts with service provider GST number
Purchase invoices for equipment
Asset Register:
Computer and equipment purchase details
Original cost, purchase date
Depreciation calculation year-wise
Written down value as of 31st March 2025
Advance Tax Payment Records:
Challans for all advance tax payments
CIN numbers
Dates and amounts paid
Having traded with numerous stock brokers in India, comprehensive ledgers and P&L statements with all expenses included effectively highlight any potential hidden charges and ensure accuracy in tax filing.
For those executing trading calls, utilising a stock screener for identifying opportunities, or managing substantial equity investment portfolios, maintaining these records ensures compliance whilst providing clarity on financial performance.
Whether participating in IPO allocations, conducting systematic trading in the stock market, or following structured investment strategies, proper documentation forms the foundation of sound financial management.
Resources at https://stoxbox.in/ offer additional guidance on maintaining accurate accounting records for various trading and investment scenarios, helping market participants fulfil their obligations efficiently whilst focusing on wealth creation through informed participation in financial markets.
Critical Checklist for FY 2024-25 Record Keeping:
✓ Bank statements (all accounts) from 1st April 2024 to 31st March 2025
✓ Trading P&L from all brokers for FY 2024-25
✓ Ledger statements from all brokers
✓ Demat holding statement as of 31st March 2025
✓ All expense bills and receipts with proper categorization
✓ Advance tax payment challans with CIN numbers
✓ Form 16 (if salaried) for FY 2024-25
✓ Asset purchase invoices and depreciation calculations
✓ Loan statements showing outstanding as of 31st March 2025
✓ Previous year’s ITR acknowledgement and computation
Advisory for FY 2024-25: The Income Tax Department’s systems are increasingly sophisticated, with automatic data matching from:
Stock exchanges (all your trades)
Banks (all your transactions)
Employers (your salary through Form 26AS)
Mutual fund companies (your investments)
Maintaining accurate, complete records ensures that your filed ITR matches data in the department’s systems, preventing notices, queries, and assessment complications. The effort invested in proper record-keeping throughout FY 2024-25 pays dividends during filing season and protects you during any future scrutiny.
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