Mandatory Audit & minimum Profit percent for Software company?

- There is no such law under Income tax Act which asks for payment of minimum 20% income tax on export of services. Tax is payable on the actual profit earned by you. 

1. No. Income tax is payable on actual profit earned

2. No. In case of private limited Co., if you are receiving entire revenue through banking channel then there is no need of Income tax Audit upto turnover of Rs. 10Cr but statutory Audit would be applicable. In case of proprietorship you will be liable for tax Audit as gross receipts exceeded Rs. 50 lacs.

3. No. 

If you have genuine business loss or profit less than 20% you should declare such loss/profit and pay taxes accordingly

For detailed discussion you may opt for phone consultation

• There is no such requirement to declare minimum 20% profit on export of services either for a company or sole proprietor. For the professional income in case of sole proprietor, 50% of the gross receipts can be declared as profit. However, if actual profits are lower you can get the books of accounts audited, which in your case was already done. So in your case you could have paid the taxes on actual profits. 
• For sole proprietor, audit is required to be done if the total turnover exceeds Rs. 50 Lakhs in case your transactions are through banking mode. For a private limited company, the same limit applies for Income-tax audit. However, No. In case of private limited Co., audit under company law is required. 
• You can show the actual profits and pay the taxes. 

Do reach out for detailed consultation. 

Hello,

Firstly, there is no such provision in the income tax law that asks you to declare a minimum profit of 20% for the export of services.

Considering the information provided,

1. For your Proprietorship - You are covered as a professional under Sec. 44ADA, which allows declaring 50% of gross receipts as net profit only if your total receipts are up to Rs. 50 Lakhs in an F.Y. Since your total receipts exceed the Rs. 50 Lakhs limit (plus your actual profit is below 50%) you can declare the actual profit after getting your books of accounts audited. Therefore, It is not mandatory for you to declare a profit of 20%, you can declare your actual profit.

2. For your Proprietorship - Yes, as mentioned in point 1, you would be required to get your Proprietorship firm tax audited. 

3. For your Private Limited Company - No, there is no need for you to declare at least 20% as profit. You can declare the actual profit and pay taxes accordingly. Tax audit applicability for the private limited company would be based on certain conditions. The Statutory audit under the companies act would be applicable.

Overall, you can declare your actual profits in either case, there is no need for you to declare a minimum of 20% as profits from your business.

I hope this answer satisfies your requirements. For a detailed resolution of your query, you can take a phone consultation.

Regards,

CA Hunny Badlani

Badlani & Associates

No as per law there is no requirement of minimum profit rate. Since it is a business minimum profit percentage come to 6% or 8% however it is advisable to show a reasonable profit which is near your actual profit for proper disclosure because of which your accountant might be saying such thing.

It depends on under which section was your proprietor audited before.

No you need to declare actual profit as per the audit done by CA in a pvt. company.

You should show actual profit based on your spend.

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Thank you.

Hello, 

Hope you are well !!

1. There is no legal requirement for a software service export company to declare a working profit of 20%. However, your accountant may have been referring to the safe harbor provision introduced by the Indian government in 2016, which allows a prescribed profit margin of 18% for certain categories of international transactions, including software development services. This safe harbor provision is optional, and you may choose not to apply it if it does not suit your business needs.

2. Since your proprietorship firm had a turnover of Rs. 1.4 crore in FY 2022-23, it would be mandatory for you to get your accounts audited by a chartered accountant.

3. Similar to the answer for question 1, there is no legal requirement for a private limited company to declare a profit of 20%. 

Hope you find the information helpful. You are free to contact me for further discussion.If you could spare two minutes of your time to write a review, It would be really grateful and very happy to read it.

Thank you.