Answer

1. F

   Facts

   A tax audit under Sec 44AB (now Sec 63) applies if turnover exceeds ₹10 crore where cash receipts and payments are each within 5%, which is normal for F&O. It can also apply under Sec 44AB(e) if you earlier opted out of Sec 44AD and declare income below the presumptive rate.

2. P

   Provisions and law

   • Sec 44AB, Income-tax Act 1961 (now Sec 63, Income-tax Act 2025)Tax audit if business turnover exceeds ₹1 crore (₹10 crore if cash receipts and payments are each within 5%), or professional receipts exceed ₹50 lakh
   • Sec 44AB(e), Income-tax Act 1961 (now Sec 63, Income-tax Act 2025)Tax audit where income is shown below the presumptive rate after the Sec 44AD(4) lock-in applies and income exceeds the basic exemption
   • Sec 44AD(4), Income-tax Act 1961 (now Sec 58, Income-tax Act 2025)A person who opts out of Sec 44AD cannot use it for the next five years
3. A

   Analysis

   Most retail F&O traders with a loss and turnover under ₹10 crore do not need an audit if they never used Sec 44AD in the earlier five years. Example: turnover ₹40 lakh and loss ₹2 lakh, never opted for Sec 44AD, so no audit. A trader who declared under Sec 44AD in FY 2022-23 and then opted out may be caught by the lock-in, so check that history.

4. C

   Conclusion

   1. 1Compute turnover the ICAI way
   2. 2Check if turnover is above ₹10 crore
   3. 3Check whether you used Sec 44AD in earlier years and then opted out
   4. 4If audit applies, get the report done before filing
   5. 5File ITR-3 with or without audit details

Getting the audit question wrong can mean a penalty under Sec 271B (now Sec 446).

General guidance from TaxSavvy’s library of money processes. Laws change; your Savvy confirms the answer on your exact case before anything is filed.