Form 145, section 58

Form 145, section 58

2 questions:
1. Form 145 (that replaced 15CA) - A sole prop firm is paying salary (not exceeding 5 lakh in current FY) to a NRI (OCI card holder) employee into their "NRO account" (not remitting outside India) . Does the employer need to file form 145 ?
First line on the IT website for form 145 says says in bold that is for "sending money outside india".
https://www.incometax.gov.in/iec/foportal/newformpage/forms/form145-UM
also some people say not required because salary is covered under different section. please clarify.

2. Section 58 (category 3) - on govt website, under "manner of computation" it says "50% of the gross receipts or profit claimed to have been actually earned, whichever is higher."
what does "profit claimed to have been actually earned" mean? why would someone "claim" a higher profit if law allows 50%? is the taxpayer supposed to calculate the profit, which goes against the whole idea of not having to maintain books? will AO be able to say "your actual profit was 75% so pay additional tax, interest and penalty" ? how would taxpayer counter it if they did not maintain books/receipts? is there any other guidance elsewhere that govt has provided?

Asked 11 days ago in Income Tax

Dear Sir,

Hope you are doing well.

Please find below the responses:

1. Based on the facts provided, Form 145 should not be required.

The principal reason is that the transaction does not involve a remittance outside India. An NRO account is an Indian bank account maintained in India. Crediting salary to such an account is a domestic banking transaction, notwithstanding the non-resident status of the account holder.

The official guidance issued for Form 145 repeatedly describes the form as the replacement for old Form 15CA in the context of "sending money outside India" and "remittances". The compliance framework appears intended to capture foreign remittances rather than every payment made to a non-resident.

Accordingly, where:

the salary is paid in India,

the amount is credited to an Indian NRO account, and

no outward remittance occurs,

the stronger legal view is that Form 145 is not attracted.

2.Under Section 58, tax is usually calculated on a simple basis:

either 50% of total receipts, or

the actual profit if the taxpayer himself declares a higher amount.

You can normally pay tax on 50% without maintaining books. Higher profit is considered only if you yourself declare it.

The Assessing Officer may adopt income higher than 50% only in limited situations, such as:

Where the assessee’s own books of account / audited financial statements reflect higher profit than the presumptive rate; or

Where the assessee has declared higher profit in other statutory or financial documents (e.g., bank submissions, loan applications, regulatory filings); or

Where there is clear and direct contradiction in the assessee’s own disclosures, indicating that higher profit has been admitted.

If you require any further detailed clarification or assistance, you may schedule a telephonic consultation at your convenience.

Thanks & Regards,

Payal Chhajed

CA, Mumbai

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Dear Querist,

Form 145 is not required where salary is only credited in India to the employee’s NRO account and there is no remittance outside India. The employer should comply with normal salary TDS/Form 24Q/Form 16.

In Section 58, “profit actually earned” means higher profit voluntarily declared by the taxpayer, if he wants to declare more than 50%. If you declare 50% or more, books/audit are generally not required under presumptive taxation.

AO cannot simply assume 75% profit without evidence. Keep basic proof of gross receipts, bank entries and invoices, if available.

For a more detailed review of your case, you may book a phone consultation.

CA Shubham Goyal

Shubham Goyal

CA, Delhi

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1. As per income tax act one needs to file 15CA if the payment is being made to non-resident irrespective of whether payment is made outside India or not. I am not sure why payment outside India is mentioned on income tax portal.

2. If one does not claim actual profit which is higher, AO could invoke section 68 for addition money lying in bank account.

Naman Maloo

CA, Jaipur

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Thank you Payal, Shubham and Naman!

@Naman, are there any 44ADA/44AD cases where AO used section 68 claiming higher actual profit (even when taxpayer has not claimed so anywhere) and taxpayer lost on appeal? can you please share links to a few?

I asked Grok AI and here's what it says:

**Why Section 68 Cannot Be Invoked**

Section 68 applies only when a sum is found credited in the books of the assessee maintained for the previous year, and the explanation is not satisfactory.

Under Sections 44AD and 44ADA, the assessee is not required to maintain books of account u/s 44AA (this is the core benefit of the scheme).
Without books, the basic precondition of Section 68 fails.
Bank passbook or bank statement is not treated as “books of the assessee” (Bombay High Court in CIT vs. Bhaichand H. Gandhi and consistently followed by ITATs).

**Key Judicial Position (Strong & Consistent Trend):**

Once income is offered under the presumptive scheme on the declared turnover/receipts, the AO cannot make a separate addition u/s 68 treating cash/bank credits as unexplained.
It would amount to double taxation or undermining the presumptive scheme itself.
The assessee is not required to explain every individual cash deposit or bank credit, provided the deposits have a reasonable nexus with business/professional receipts (CIT vs. Surinder Pal Anand, Punjab & Haryana High Court — widely followed).

**Recent/Important ITAT Decisions Supporting This**:

Delhi ITAT (very recent): Receipts already offered to tax under Section 44AD cannot be taxed again as unexplained cash credits u/s 68.
Bangalore ITAT (Kokkarne Prabhakara and similar): Explicitly held that Section 68 cannot be applied when the assessee has opted for 44AD without maintaining books.
Mumbai ITAT (Dinesh Kumar Verma and others): Same view — Section 68 requires books; since 44AD does not mandate books, it cannot be invoked.
Multiple other benches (Jaipur, Ahmedabad, etc.) have deleted such additions

Asked 10 days ago

Dear,

I have not come across a clean reported case where AO merely assumed “higher actual profit” under 44AD/44ADA and taxpayer finally lost under section 68.

The stronger view is that section 68 needs books of account, and bank passbook alone is not “books”; also, if deposits are linked with declared turnover, separate addition is generally not justified.

However, taxpayers have lost where cash deposits were not proved as business receipts, facts were contradictory, or no evidence was given — usually under section 69/69A, not pure section 68. Examples: S. Sakunthala Sivam v. ITO and Hitesh Jagat Parekh v. ITO.

Practical defence: keep bank-wise receipt reconciliation and basic invoices/party details.

For a more detailed review of your case, you may book a phone consultation.

CA Shubham Goyal

Shubham Goyal

CA, Delhi

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592 Answers

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