What Nithin Kamath says on ‘anomaly’ of getting tax audit of trading profits


Zerodha co-founder and CEO Nithin Kamath on Tuesday said an anomaly in qualified chartered accountant (CA) vetting tax returns if the trading profit is less than 6% of turnover or if the turnover is over 10 crore needs to be fixed.

Kamath, who is known for his educational tweets on social media, said requiring all traders to get an audit is maybe an overkill and is against the idea of ease of doing business.

The Zerodha founder feels easing this process will encourage more traders to start filing income tax returns.

“An easy fix is to introduce a new ITR business code for those whose business income is only from trading the markets. Exempt everyone who uses this code from tax audits. If done, many online platforms can give a 1 click option to file ITR 3, similar to ITR 1 for salary,” Nithin Kamath said.

Kamath has also urged authorities to exempt those using this new ITR business code from GST registration to avoid getting automated GST notices as well.

The rationale given is the issue with ITR3 is that it is meant for normal businesses and the definition of turnover can’t really be the same for those trading the markets, according to Nithin Kamath.

“When trading, generating turnover doesn’t mean profits and you can have a large turnover with a small amount of money,” he said.

“A tax audit by a CA is mandatory if profit is less than 6% of turnover or if turnover is greater than 10 crore. Since salary income can’t be set off against trading or business losses, any trader with a salary greater than 2.5 lakh who has a tax liability will most likely need to use ITR3 and need an audit. A tax audit can cost over 5000 per year when the average size of a trading account is less than 1 lakh, making it extremely expensive—not to mention the potential risk of customers getting mis-sold when notices are sent. Also, traders in tier 2/3 towns don’t even have access to many CAs,” Nithin Kamath further added.

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