This section continues to remain ambiguous but in my opinion section 44AD was introduced for people who do not mainitain books of accounts. So logically such people will have no idea about their actual profits and expenses. They will only have the gross receipts. This is why expenses and depreciation are all disallowed under this section and you are allowed to declare 8% profit on presumptive bases.

Once you avail of this section, you have to avail of this section for the next 5 consecutive years, otherwise it becomes mandatory to undergo audit and maintain books of accounts. This indirectly means that in subsequent years following the year you adopted 44AD, you will be bound to declare 8% profit even if you incurr losses or lower profit.

Given all the data points, I don't think assessee can be forced to declare more than 8% profit since the whole basis of this section is that he does not know his profit margin due to non-maintenance of books of accounts. If assessee is forced to declare actual profits and also not allowed to claim any expenses or depreciation, then the whole intention behind this section falls apart and he would be better off maintaining books of accounts and filing under 44AA which is very difficult for any small businessman to do on his own.

Still, tax department holds powers to question assessee about the excess balance funds & money in bank account(s) atleast to ask the taxpayer what is the money, where it has come from and et al.

If at all AO feels there is a huge gap between 8% profit and actual profit, then AO can ask the taxpayer to revise return and declare full profit.

Taxpayer has option to appeal and rest is the legal process.

grey areas as we say are in all tax provisions.

I think such ambiguity should be removed from the tax provisions to encourage more citizens to avail of this tax provision. We must remember that the original intention behind 44AD was to widen the tax net by bringing small businesses into the tax net.

Think of the small shopkeepers and freelancers/professionals who run their business/profession single handedly. It is practically impossible for such people to keep books of accounts without hiring a full-time CA. Even filing ITR-3 is a daunting task for them as it's extremely complicated. Last time I went to a CA, he said he would charge 20k per month to maintain books of accounts which is too much for any small businessman to bear.

To make it feasible for such people to file their taxes, department introduced ITR-4 and section 44AD/ADA/AE/AF. Now if IT department, starts harassing assesses and questions them regarding where extra money came from in their bank accounts, these people will simply go back to not filing their taxes and keep all the cash at home or bank lockers instead of bank accounts.

The whole journey of "harassing tax return forms" started in 2005 or so when the UPA government was in power and age old Congress leader from south was Finance Minister. 

Fedup with the old tax return forms Form2D and Form2E SARAL type of return forms which were "all in one forms" the government and certain lobby in India felt that we should expand tax return forms. What they created is a series of ITR forms with serial numbers and a last form called ITR-V form.

Leave aside any tax form having classic examples in instructions, most instructions are vague.

Just see the tax return forms of the United States: 1040, 1040A and 1040EZ. Each form has a very detailed long booklet of instructions on who should fill which form and how to fill the form. Forms themselves are very easy and self explanatory. None of the Forms have excel scheme and excel sheets and Java utilities.

https://www.irs.gov/filing

Three modes of filing tax returns:

1) Physical paper return forms and printed booklets of instructions all available in all nation's library and city council offices from 1 Feb till 15 April every year. Millions of pages printed every year because thats the law.

2) Online paid websites allow tax return efiling and it is the most preferred option

3) Download editable PDF and fill the return, print PDF and send by post

I still feel, our ITR2, ITR3 and other forms are asking too much information. See the millions of cells making each excel so bulky 11MB size.

CBDT is required to make ITR1 and maybe one more detailed form and third form for Non Residents.

Even for the current ITR1, I have fought strongly with the Govt by writing emails to improve ITR1 to allow Exempt Income more than 5000, allow dividend declaration and allow exempt Capital Gains on equity stocks and MF. Earlier, just because someone earned tax free dividend of Rs 500, they had to file ITR2. 

Again they messed up from this year asking breakup of salary without giving any demo or example of breakup of salary.

ITR forms need to be streamlined, shortened, simplified.

Just see the mess of Schedule TDS2 in ITR2. Just see the Schedule TR_FA. Complete mess.

Completely agreed with your analysis of the current situation with tax forms and your suggestions. Practically speaking, ITR-1 is the only form that can be filled by any assessee on their own. There is also a decent amount of information on the Internet that can enable anyone to fill the form.

ITR-2 is certainly a lot harder but still manageable if one spends a lot of time searching on the Internet about the various sections and what they mean. But in a country where most people are not financially saavy, it's still no easy feat.

Now coming to ITR-3, it is a draconian form and it's practically impossible for anyone to fill on their own unless they really know the ins and outs of all income tax laws. Not even most Chartered Accountants are aware of all the provisions in this form as it's so massive and covers so many things. Moreover, since there is no explanation or documentation for any of the fields in the form, many fields are filled up based on assumption which leads to many mistakes and repeated defective return notices being sent by IT department. Don't people have anything better to do than waste time filling these forms?

Tax forms should be created in a manner such that an ordinary asssessee can easily fill up all the details on his own by reading a simple instruction manual. There is no need to ask for so much details as you said. It is nothing but harassment and discourages people from filing ITR.

However nowadays I have stopped writing to the government on improvements required in governance because I feel their "ability to listen" has now vanished after the UP State election results were out. Now nobody listens in govt.

sorry for bumping old post. lets say i withdraw money from bank, in that case can i show it expenses? or i send money using internet banking to someone else. is there anyway tax department can ask me for transaction invoice/receipt?

Originally posted by : Binoy2014
	sorry for bumping old post. lets say i withdraw money from bank, in that case can i show it expenses? or i send money using internet banking to someone else. is there anyway tax department can ask me for transaction invoice/receipt?

Yes, query may be raised specifically for high transaction amount and or any payment made out of India,,,,,

thank you for quick reply. another question "Can i show IMPS transaction (sending money to indian citizen) as business expenses without any receipt?"

thank you for quick reply. another question according to 44AD if no book account require to maintain

"Can i show IMPS transaction (sending money to indian citizen) as business expenses without any receipt?"

if we need to disclose actual profit, what is the point to make rules of 8% presumtive tax and if rule saying no need to maintain any book account how tax department can raise question about the transaction,
also without any receipt how they can find out the actual profit?

" "Can i show IMPS transaction (sending money to indian citizen) as business expenses without any receipt?"

Justification of the payment as related to your business is always mandatory.

For Eligible business with presumptive assessment books are not required to maintain, and minimum declared 8% profit is accepted by IT department for taxation purpose, but other acts like FEMA regulation, Narcotics drugs act, etc.  are not subsided by 'no books of accounts case' ...