(As per Section 44AD)
In case of small business
There is no need to maintain books of accounts and get accounts audited by CA
They can straight away show 8% of turnover as Profit and pay Income tax on it
Note:-8% is Minimum Profit to be shown, Assessee can show more than 8% profit also
What if assesse show less than 8% profit or loss?
It is not allowed as per Section 44AD
He has to compulsorily gets accounts audited and pay tax on it.
This Scheme is applicable for Small business whose turnover is upto 1 crore(For Financial Year 2016-17,limit is increased to 2 Crore )
This scheme only for Proprietorship and Partnership who are Resident
Suppose a Partnership firm has turnover of 80 lacs
What is its business Income
How much Income tax he is payable by it?
|PROFIT AND GAIN OF BUSINESS AND PROFESSION||640000|
|(MINIMUM 8% OF TURNOVER)|
|GROSS TOTAL INCOME||640000|
|Surcharge @ 12%||0|
|Tax + Surcharge||192000|
|Cess @ 3%||5760|
|Total Tax including Cess||197760|
Can it pay Interest and Salary to Partners to reduce its tax liability?View Answer
If we are claiming 8% profit ,we cannot claim deductions under Section 30 to 38.
But we can claim other deduction like Section 40 (b) Deduction for partners.
Suppose in Q1A,Salary paid to both working partners 250000 each
What is Maximum Salary it can give to 2 Partners as per Section 40(b)?
|Profit Upto 3 lacs||90% of 300000=270000|
|Balance Rs 340000 profit||60% of 340000=204000|
|Total Maximum Salary||474000|
Salary actually paid to both working Partner=500000
Hence Maximum 474000 is allowed as deduction
Deduction Allowed to each=474000/2=237000
What is tax payable by Partnership firm in this case
|Profit Earned before Salary||640000|
|Salary Paid to partners||-474000|
|Profit and Gains of Business and Profession||166000|
|Surcharge @ 12%||0|
|Tax + Surcharge||49800|
|Cess @ 3%||1494|
|Total Tax including Cess||51294|
|Particulars||Partner 1||Partner 2|
|Profit and Gains of Business and Profession||237000||237000|
|Surcharge @ 12%||0||0|
|Tax + Surcharge||0||0|
|Cess @ 3%||0||0|
|Total Tax including Cess||0||0|