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Small Business can claim benefit of Section 44AD Presumptive Income Scheme

As per Section 44AD

For small proprietorship and partnership business

  • There is no need to maintain books of accounts and get accounts audited by CA
  • They can straight away show 8% of cash turnover as Profit and pay Income tax on it

           (Note- For Amt received directly in bank ,we have to take 6% as Profit instead of 8%)

Note:- 8%/6%  is Minimum Profit to be shown, Assesses can show more than 8% profit also

 

What if assess show less than 8%/6% profit or loss?  

It is not allowed as per Section 44AD

He has to compulsorily gets accounts audited and pay tax on it.


Note:-

This Scheme is applicable for Small business whose turnover is upto 2 crore

This scheme only for Proprietorship and Partnership who are Resident(It is not applicable to Companies)

 


Section 44AD Scheme

If Turnover of Business upto 2 Crore,then

  • 8 % of Turnover is Profit for Cash Transactions
  • 6% of Turnover is Profit for Other Transactions
  • No need to make books of accounts
  • No need to do Audit

If Turnover of Business more than 2 Crore,then

  • Proper Books of Accounts and Audit is Compulsory

 

Example 1

Suppose a person has turnover of 20 lacs (15 lac in cash & 5 lac in bank)

What is his business Income How much Income tax he is payable by him

Answer

Suppose a person has turnover of 20 lacs.jpg

 

Example 2

Suppose a person has turnover of 20 lacs (15 lac in cash & 5 lac in bank)

Can person show his Income to be 350000

Answer

Yes, 8%, 6% is the Minimum Tax

He can show more than 8%, 6% also

PARTICULARS AMT
TURNOVER 2000000
   
PROFIT AND GAIN OF BUSINESS AND PROFESSION 350000
(MINIMUM 8%, 6% OF TURNOVER)  
   
GROSS TOTAL INCOME 350000
TAX 5000
REBATE 2500
NET TAX 2500
CESS 100
TAX+ CESS 2600

 

Example 3

Suppose a person has turnover of 20 lacs (15 lac in cash & 5 lac in bank)

Person Claims that he has actually made a profit of only 50000

Can he show this profit in return?

Answer

He has to show Minimum Profit of 1500000(1500000 x 8% + 500000*6%)

If he claims that his profit is less than 150000,he has to maintain proper books of account and get accounts audited by CA

 

Example 4

Suppose a person has turnover of 20 lacs (15 lac in cash & 5 lac in bank

Person Claims that he has actually made a loss of 30000

Can he show this loss in return?

Answer

He has to show Minimum Profit of 1500000(1500000 x 8%+500000*6%)

If he claims that his profit is less than 150000 or he suffers a loss,he has to maintain proper books of account and get accounts audited by CA

 

Example 5

What is the PGBP Income of a proprietorship (Individual) as per Section 44AD in following cases ?

Particulars Case 1 Case 2 Case 3 Case 4
SALES (80% cash, 20% Bank) 1000000 5000000 8000000 25000000
Less        
Expenses 800000 4800000 8100000 9000000
Profit/loss 200000 200000 -100000 16000000

Answer

Particulars Case 1 Case 2 Case 3 Case 4
Turnover 1000000 5000000 8000000 25000000
Cash 800000 4000000 6400000 20000000
Bank 200000 1000000 1600000 5000000
Minimum profit 8% (Cash turnover *8%) 64000 320000 512000 1600000
Minimum profit 6% (Bank turnover *6%) 12000 60000 96000 300000
Total Profit Minimum Profit 76000 380000 608000 1900000

 

Particulars Case 1 Case 2 Case 3 Case 4
TURNOVER 1000000 5000000 8000000 25000000
         
PROFIT AND GAIN OF BUSINESS AND PROFESSION 76000 380000 608000 Not Applicable
(MINIMUM 8% OF TURNOVER)        
         
GROSS TOTAL INCOME 76000 380000 608000  
TAX 0 6500 34100  
REBATE 0 0 0  
NET TAX 0 6500 34100  
CESS 4% 0 260 1364  
TAX+ CESS 0 6760 35464  

In Case 4,person has to compulsorily maintain books of accounts and get accounts audited,he cannot claim Section 44AD

Note:-

Also in Case 3, if person wants to show loss, he also has to compulsorily maintain books of accounts and get accounts audited,he cannot claim Section 44AD

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Davneet Singh

Davneet Singh is a graduate from Indian Institute of Technology, Kanpur. He has been teaching from the past 12 years. He provides courses for Maths and Science at Teachoo.