Practical point of views on Sec 44AD deemed profit vs Actual Profit

Akhil Pachori | Last updated: 28 July 2022

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Section 44AD allows businesses to declare a 'deemed profit' without maintaining detailed books. However, a strong view suggests this is for administrative ease, not for under-declaring profits when actual earnings are significantly higher. Declaring a profit lower than actual earnings, especially when asset accumulation doesn't match declared income, can be seen as tax evasion. While some argue for declaring the minimum deemed profit, this carries a risk of scrutiny and potential penalties.

Practical Point of View in cases where Income is higher than 8%, but the person is declaring deemed profit as income u/s 44AD There are two views/interpretations coming from many taxpayers and professionals as below: 1. The much Stronger view is that the government has provided this facility t

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FAQ :

Section 44AD provides a presumptive taxation scheme allowing certain taxpayers to declare a 'deemed profit' at a specified percentage of their turnover, without the need to maintain detailed books of accounts.

The stronger view is that the deemed profit option under Sec 44AD is primarily for simplifying compliance and book-keeping, not for under-declaring income when actual profits are higher.

While some argue you can declare any profit if books aren't maintained, this is risky. If your actual profit is significantly higher than the declared deemed profit, and your asset accumulation doesn't match your declared income, it could be considered tax evasion.

The main risk is that the tax authorities may view this as tax evasion, especially if there's a mismatch between declared income and your financial activities. Your case could be selected for scrutiny, leading to penalties.

An alternative view, often supported by those unwilling to pay tax on actual income, is that the government allows the declaration of the minimum deemed profit (e.g., 8%) regardless of actual earnings, citing ITAT judgments and the low scrutiny rate.