Hi Niyati.
Can you elaborate on this a bit? I was wondering how can AO put the liability on the assesse if they opt for the section 44ada as that would require maintaining books and to me the whole point of the section was to reduce the burden of maintaining books ?
I was reading this case of Mohan Kumar Agarwal , Howrah vs Ito, Ward - 46(1), Kolkata , … on 8 May, 2019 where appeal is filed to Income Tax Appellate Tribunal- Kolkata(ITAT)- It is a case of 44AD, which is similar to 44ADA, but your deemed profit is 8% of the revenue.
Here, The Income tax officer claimed that assessee had declared incorrect income on the basis of both his calculation and the records provided by the assessee. This implies that the officer has in record documents of the assessee declaring that his income is greater for the assessment year.
The ITAT held that declaring 8% profit does not mean that assessee will have to prove that he incurred 92% expenses. As the income component is estimated, the expenditure component is estimated as well. As the Assessing Officer is not doubting the turnover of the assessee, he can not make any addition in his income.
Moreover, the section does not put obligation on the assessee to maintain books of accounts, hence he can not be punished for maintaining the same.
Also, the income tax officer can not take shelter of Section 69C to claim that the expenditure incurred by the assessee is unexplained,hence it should be added to his income. The Section 44AD deems that expenditure is 92%, hence the question of whether the same have been incurred or not does not arise.The position regarding the unexplained assets(69A) of the assessee was cleared in the case law Shri Ankit Shankar Lal Tanwani Vs. The ACIT, where the additions were dismissed by the ITAT-Nagpur, as long as assessee’s turnover could justify the same.
Income tax department collects information and tracks the transactions that are connected with your PAN. You can view the details in the Annual Information Statement available on the income tax portal.
On the basis of such information the AO analyses your situation and can ask you provide further details if your return is selected for scrutiny. It is the responsibility of the taxpayer to prove that the income addition is not justified.
Though it has been held in various case laws that AO can not ask for books of accounts for a person declaring income as per Presumptive taxation scheme.
As F&O Trader your all transactions are digital in nature (more than 95%), so in this case I do not required Audit to be carried out till my turnover is less than 10Cr.
If my turnover is less than 10 Cr, My queries are
1)Should I Opt for Presumptive Tax Scheme Section 44AD?
2)If I opt for Presumptive Tax Scheme and my profit is less than 6% of my turnover and my income is more than exemption limit, do I need to audit my account?
3)If I opt for Presumptive Tax Scheme and my profit is more than 6% of my turnover and my income is more than exemption limit, do I need to audit my account?
4)If I do not opt for Presumptive Tax Scheme Section 44AD and my profit is less than 6% of my turnover and my income is more than exemption limit, do I need to audit my account?
5)If I do not opt for Presumptive Tax Scheme Section 44AD and my profit is more than 6% of my turnover and my income is more than exemption limit, do I need to audit my account?
Here are the answers to your various questions considering more than 95% of your trading transactions are digital in nature for FY 2022-23.
Presumptive taxation scheme for businesses u/s 44AD can be opted for if the turnover is up to ₹ 2 crores.
If the turnover exceeds ₹2 crores, you will have to opt for the regular scheme of taxation.
If you opt for the presumptive scheme and you have incurred a loss or the profit is less than 6% of the trading turnover and your total income is more than the basic exemption limit, a Tax Audit is applicable.
If you opt for the presumptive scheme and your profit is more than 6% of the trading turnover, a Tax Audit is NOT applicable.
For trading turnover between 2 crores to 10 crores under a regular taxation scheme, if more than 95% of your transactions are digital in nature, a tax audit is NOT applicable irrespective of the profit.
Yes, an Income from F&O trading can be reported under the presumptive taxation scheme. However, it’s important to note that intraday trading, is considered speculative business income and is not eligible for the presumptive scheme.
Additionally, a business with a turnover of up to INR 2 Crore can opt for the presumptive taxation scheme u/s 44AD. And you are not required to maintain detailed books of accounts.
I am a freelancer professional and my earning for 2023-24 financial year would be around 40 lakhs.
My CA told me that althought i can file tax with presumptive scheme and show taxable income as 20 Lakh, i should have the expenses of 20 Lakhs from my account as well.
So basically if my total living expense is just 10 lakhs and I save remaining 30 lakhs, Can i still avail the presumptive taxation scheme 44 ADA and show 50% income for taxation?
As correctly quoted by @radhesh23k it is advisable to show the actual profits, if they are higher than 50% of the gross receipts. As per your stated case, you should declare 30 lakhs as your profits under section 44ADA.
Hi,
I understand that i don’t need to maintain books.
But do i still have to withdraw approx 50% money from my account in order to show any expenses, if at all any scrutiny comes? Like paying light bill etc?
Or is it ok to keep the entire amount in my bank account n later transfer it to my personal account?
Thanks.
It is advisable to make expenses from your bank account directly rather than withdrawing 50% of your money from your account. It is difficult to prove that cash expenses are genuine since you would need to maintain supporting documents in respect of expenses made.
Even transferring the money to your personal account would not make any difference since it can be easily identified if your bank statements are examined.
Certainly! When operating under the presumptive taxation scheme where you are not required to maintain books, it is advisable to make expenses directly from your bank account rather than withdrawing or transferring to your personal account.
It is deemed that 50% of your income is profit and the rest 50% is considered as expenses.
@Muskan_Balar I understand it is good to show actual profits, but if I intentionally show 50% profits whereas actual profit is around 80% under 44ADA, then will I be getting some notice from IT department? or is it possible if they ask me to submit the remaining tax after some years? or will they never raise any concern on this ever?
Yes, there is a possibility that you may attract attention from the IT department.
If discrepancies are identified between the profits you report and the actual profits, it is possible that they can send you a notice to provide additional information, clarifications, or supporting documents. They may also ask you to submit the remaining tax owed, along with any penalties or interest charges for underpayment.