1) Yes
2) 6% or actual profit whichever is higher
3) Better to maintain and retain them
For detailed discussion you may opt for phone consultation
Presumptive taxation
I work in a IT company. My main source of income is from Salary. Info about my side business ~~~~~~~~~~~~~ I buy and sell retail subscriptions of online services - like streaming services ( Netflix, Amazon Prime etc) or VPN services. For example, I buy 1 Subscription of VPN from a VPN company at, lets say, INR 1000 as a retail customer. Then I sell it to 4 students at 250 INR each, so total I get is 1200 INR, of which 200 INR is my profit. So 17% Profit, but real profit might be much less if I include lot of other business-related expenses. My total turnover expected this FY 2025-26 is around 6-10 lakhs. All my transactions are online / digital. Doubts I have: ~~~~~~~~~~~~~ I heard about Presumptive tax 44ad, where we can only pay tax once. 1) Is this applicable for me ? 2) How much tax will i have to pay ? Is it tax on 6% of gross receipt ? or do we have to manually calculate all sales and expenses to find actual profit and pay tax on that ? 3) Do I need to maintain all invoices, expenses , bank statements ?
Asked 2 months ago in Income Tax
Presumptive taxation under Section 44AD is designed for small taxpayers like you with a turnover up to ₹2 crore in a financial year, making it simpler to pay tax without maintaining detailed accounts.
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Applicability: Yes, your side business of buying and selling online subscriptions with expected turnover between ₹6-10 lakhs qualifies for presumptive taxation under Section 44AD for FY 2025-26.
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Tax Calculation: Under Section 44AD, the Income Tax Department presumes your profit at 6% of your gross receipts if you receive payments digitally (which you do). You pay tax on the higher of this presumptive income or your actual net profit (if you opt to maintain books and prove higher profit). So, you do not have to manually calculate all sales and expenses unless you choose to maintain detailed accounts and claim actual profits.
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Record Keeping: Although presumptive taxation reduces compliance, it is advisable to maintain and retain all invoices, expense bills, and bank statements. This helps substantiate income if required in case of any tax assessments or audits, especially since your business is digital and you have multiple transactions.
If I choose 44AD and next year I decide to close down my side business and there are no deposits in my bank apart from my Salary. Will I have to pay any penalty ? Will I be audited ?
Asked 2 months ago
hello
Please refer to the following clarifications:
1. 44AD/44ADA Applicability
It is regarded as trading since you are merely purchasing and reselling VPN without making any technical adjustments or services.
44AD is therefore completely applicable.
Only when professional or technical services are added does 44ADA apply, which is not the case in this instance.
2. How much tax will you be required to pay?
Income under 44AD is taxed at regular rates and added to your regular income.
For instance:
Pay: ₹10,000,000
Turnover: ₹10,000,000 → Income at 6% = ₹60,000
Total earnings: ₹10,60,000
There is no tax in this case because income up to ₹12 lakh is tax-free from A.Y. 26 to 27.
3. Do you have to keep track of books and invoices?
Invoices and detailed books are not necessary under 44AD.
All you have to do is submit basic information in your ITR: Creditors , debtors stock and cash balance
If you choose Section 44AD and later close your side business with no business income deposits, you will not have to pay any penalty simply for closing the business. Audit is generally not required unless your declared income is below the presumptive profit or turnover exceeds limits. Just ensure you file your tax returns accurately reflecting the closure.
In short: No penalty or audit just for closing the side business under 44AD.
No if business ceases to exist
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