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ITR-3 is for individuals and HUFs with business or professional income. F&O trading is treated as business, requiring books if turnover above Rs 1 cr or profit exceeds Rs 2.5 lakh.
ITR Filing 2025.
Are you a salaried individual, freelancer, consultant, small business owner, or trader dabbling in Futures & Options (F&O)? You will most likely be required to file ITR-3. But, is it mandatory to maintain your profit & loss account and balance sheet for filing ITR-3? Here’s all you need to know:
Who Should File ITR-3?
ITR-3 is specifically designed for individuals and Hindu Undivided Families (HUFs) who have income from profits and gains of business or profession. This includes:
- Self-employed Professionals: Doctors, Lawyers, Architects, Consultants, Freelancers, Designers, etc.
- Business Owners: Proprietors, Shopkeepers, Manufacturers, Service Providers.
- Traders: Especially those dealing in shares, commodities, or derivatives like Futures & Options (F&O).
- Salaried Individuals with Business Income: If you have a salary plus significant income from a side business or profession, you likely need ITR-3.
What Do Income Tax Rules Say About Maintaining Books? (Section 44AA & Rule 6F)
The requirement to maintain books of accounts is governed primarily by Section 44AA of the Income Tax Act, 1961, with details specified in Rule 6F.
As per the rules, maintaining proper books of account is mandatory for certain categories of taxpayers based on their income levels and profession. The rules differ for “Businesses” and “Professions”.
When Is It Mandatory Or Optional To Maintain Books Of Accounts?
The need to maintain books isn’t universal for all ITR-3 filers. It hinges on your type of income and its magnitude:
For Individuals Carrying on a “Business” (e.g., Traders, Shopkeepers, Manufacturers):
Mandatory: If your total sales/turnover/gross receipts from the business exceed Rs 1.2 crore in any of the three preceding financial years, OR your income from business exceeds Rs 2,50,000 in any of the three preceding financial years. (Section 44AA(2)(i) & (ii)).
Optional: If your turnover/income is below these thresholds. However, you must still maintain sufficient records to substantiate your income and expenses claimed in your ITR.
For Individuals Engaged in a “Profession” (e.g., Doctors, Lawyers, Architects, Accountants, Engineers, Consultants, Freelancers):
Mandatory: If your gross receipts from the profession exceed Rs 15,00,000 (Rs 15 lakh) in all of the three preceding financial years, OR your income from the profession exceeds Rs 2,50,000 in any of the three preceding financial years. (Section 44AA(2)(iii) & (iv)).
For Certain “Specified” Professions (Rule 6F): Professionals specifically listed under Rule 6F (Legal, Medical, Engineering, Architectural, Accountancy, Technical Consultancy, Interior Decoration, or any other notified profession) must maintain prescribed books of accounts if their gross receipts exceed Rs. 1,50,000 in any of the three preceding financial years. This is a much lower threshold.
Optional: If your gross receipts/income fall below these thresholds for your specific professional category.
What About Salaried Individuals With F&O Trading?
If you have any income from F&O trading (whether profit or loss) alongside your salary income, you must file ITR-3. You cannot use ITR-1 (Sahaj) or ITR-2. F&O income is classified as “Income from Business or Profession”.
F&O Activity is Treated as a “Business”: For tax purposes, your F&O trading is considered a separate business activity, irrespective of its scale, frequency, or whether you made a profit or loss. The rules under Section 44AA for businesses apply specifically to this F&O activity.
Maintaining Books of Accounts – Mandatory Depends on F&O Turnover/Income:
Mandatory: You are compulsorily required to maintain proper books of account for your F&O business if:
The absolute turnover (sum of all positive and negative trades, without netting off losses) from your F&O trading exceeds Rs 1 crore) in the financial year, OR
Your income (profit) from F&O trading exceeds Rs 2,50,000 in the financial year.
A loss in F&O does not exempt you from maintaining books if your absolute turnover crosses Rs 1 crore. The turnover threshold is based on gross trading value, not net profit/loss.
Optional: If your F&O absolute turnover is below Rs 1 crore and your profit is below Rs 2,50,000, maintaining formal books under Section 44AA is technically optional for the F&O activity specifically. However, it is recommended.
Why Maintaining Books Can Help You
A Delhi-based income tax expert said, “When filing your Income Tax Return this year, ensure that your consultant prepares both your Personal Income & Expenditure Account and Balance Sheet, regardless of whether you’re a salaried employee or do not have any business. If you do have a business, ask them to prepare a separate Personal Income & Expenditure and Balance Sheet in addition to your business Profit & Loss A/c and Balance Sheet.”
Many individuals only have their Income Computation and ITR Acknowledgement Copy, especially those who file through their office or online, he added.
The advantages of having your personal balance sheet or Income & Expenditure A/c include:
1. Financial Awareness: It provides a clear snapshot of your financial situation, helping you understand your assets, liabilities, income, and expenses.
2. Budgeting and Planning: By tracking your income and expenses, you can create a budget and plan for future financial goals, such as savings, investments, or debt repayment.
3. Decision Making: It enables informed decision-making regarding financial matters, such as whether to make a large purchase, take out a loan, or invest in a particular opportunity.
4. In the event of your passing, your loved ones will have insight into your assets and liabilities, aiding them in managing and tracking your financial affairs.
5. They prove invaluable when applying for personal loans, including educational loans for your child.
6. Having these documents readily available can streamline your VISA application process.
“While you may incur additional fees for these services, consider it an investment essential for your personal financial well-being,” he added.
Who Needs Audit?
As per Section 44AB of the Income Tax Act, 1961, a tax audit is mandatory for individuals, firms, or businesses whose total sales, turnover, or gross receipts exceed Rs 1 crore in a financial year. However, this threshold is increased to Rs 10 crore if the taxpayer’s cash receipts and cash payments do not exceed 5% of total receipts and payments, respectively. For professionals, a tax audit is mandatory if gross receipts exceed Rs 50 lakh.
In the case of taxpayers opting for presumptive taxation under Section 44AD, audit becomes necessary if turnover exceeds Rs 2 crore or if they declare income lower than the presumptive rate and their total income exceeds the basic exemption limit. Similar provisions apply under Section 44ADA for professionals and Section 44AE for transporters. The audit must be conducted by a chartered accountant, and the report must be submitted in Form 3CA/3CB along with Form 3CD before the due date.
The last date to file non-audit ITRs is September 15, while those who require audit must file the income tax return by October 31.
Haris is Deputy News Editor (Business) at news18.com. He writes on various issues related to personal finance, markets, economy and companies. Having over a decade of experience in financial journalism, Haris h…Read More
Haris is Deputy News Editor (Business) at news18.com. He writes on various issues related to personal finance, markets, economy and companies. Having over a decade of experience in financial journalism, Haris h… Read More
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