Aa per sec 44ad there is no need of maintaining the accounts and profit is deemed to have 8 percent.. What if one is earning profit suppose 15 percent and he is paying at 8 percent as per sec 44ad .. as per this sec no need to maintain account so he cant compute his profit.. so in total he avoid paying taxes on 15-8 = 7 percent profit.. as he dont know his profit bcz he doesn't maintain account books.. .. so ho got extra money accumulated in his bank account.. so does he has done right ... or sec 44ad one need to maintain account books
Hi
8%is minimum profit one has to declare ,it can be higher also.
Maintenance of books are not mandatory but you have to keep sufficient documents to prove the genuine ness of transaction in case of any query.like sales bills, expenditure bills ,bank statement,cash book.
Hope it helps
As per Sec 44AD you can declare profit @6%/8% or above , this means minimum is above percentage but if you have profit above the limits then you have to show higher
in your case if you have balance in your accounts/ having assets / exp which is over your shown income then you may face income tax scrutiny
coz computation of profit is not relevant, concern is if you have wealth then how this arise and on basis of wealth department can do reverse calculation and levy tax and penalties too.
thus plan accordingly
If required more discussions the. Please book a phone consultation
Dear Sir,
Hope you are doing well !!
Technically, you are very much allowed as per law to declare your income at a flat rate of 8% and dont required to maintain books of accounts.
However, if your case is selected in scrutiny then the AO can definitely ask for your bank account.
If there is huge difference between actual and disclosed profit then in long run much better if you declared your actual income and paid due taxes.
In my opinion, you should maintain books of accounts.
So how one can come to know whether profit is 8 percent or more without maintaing accounts.. Suppose someone turnover is 1.5 crore and his profit without depreciation is 10 percent and if depreciation is considered than his profit is 8.5% then how much profit he have toh show in44ad .. is it 10 percent or 8.5 percent?
A person engaged in business/profession has to maintain books of account of his business/profession according to the provisions of section 44AA.
In case of a person engaged in a business and opting for the presumptive taxation scheme of section 44AD, the provisions of section 44AA relating to maintenance of books of account will not apply. In other words, if a person adopts the provisions of section 44AD and declares income @ 8%/6% of the turnover, then he is not required to maintain the books of account as provided under section 44AA in respect of business covered under the presumptive taxation scheme of section 44AD.
In such a case, simple documents which help to justify the transaction should be maintained. While the law does not provide for proper maintenance of documents, ideally any person would keep receipts (cash slips, passbook etc ) to understand or for reference for himself for what purpose payments was made or received.
Under 44AD profit is after all exp
thus as per your query profit is 8.5%
The AO can come to know through bank statements, Business assets,industry trend etc.
Income computed as per section 44AD (i.e., @ 8% of turnover or gross receipts of the eligible business, for the previous year) will be net income for the business covered under this scheme.
From the net income computed as above, an assessee is not permitted to claim any deduction
under sections 30 to 38 (including depreciation or unabsorbed depreciation).
So, it is 10%.
Hi,
If the actual profit is 15-20% only instead of 8%, I don't think it will be an issue. However, if there is a huge gap between actual profit and deemed profit and money gets accumulated over a period of time, income tax department may ask source of that income and you will have to answer to them.
Broadly, ever businessman will know his estimated profit. If you think, it in the range of 15-20%, I don't see any issue.
You need to first understand the basic motive behind section 44AD here the government is putting trust over small business and saving them from the burden of maintaining books against this they only ask the businesses to show 8% or actual profit whichever is higher.
Businesses have to provide 4 figures to the government and for that one don't need to maintain books, every person managing a business knows what profit he is earning even without maintaining books.
If you don't have any explanation for your expense then income tax can even assume all credit entries in your bank account as your income.
Now to answer your second question one need to show 8.5% profit as section 44AD says 44AD considers all profit after taking into consideration all PGBP provisions therefore one will show 8.5% profit.
Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.
Thank you
Hi
Profit after depreciation to be declared.
Hi,
- If the actual profit is more than 8% then you need to pay tax on actual profit. Generally section 44AD is for persons who are incurring losses or earning profit below 8% to reduce the burden of maintaining books of accounts.
- If the accumulation of wealth will not match with the ITR filed then you will face the srcutiny.
- Actual profit means profit after all expenses. It is better to manitain books of accounts and get them audited.
Thanks
Law allows you to declare minimum profit till 8% (6% in certain case). Note it is minimum.
Once you declare profit upto 8% law will not catch hold of you. Only they can confirm your turnover declaration.
You can have a business having 20% profit margin & still declare to govt as 8%. It will still be as per law only.
