Salary not booked as expense

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A business owner operating under Section 44AD inquired about not booking a £100,000 salary expense in the current year, instead showing it as 'Advance Salary Paid'. They asked if this expense could be carried forward to future years to offset higher profits. The advice given is that Section 44AD, a presumptive taxation scheme, does not require expenses like salaries or depreciation to be carried forward. Therefore, the business can declare profit based on the presumptive rate (e.g., 8% of turnover) without needing to account for these specific expenses in future years.

DIVYESH JAIN

DIVYESH JAIN (Querist)

20 September 2021 Dear Sir,

I had not shown Salary expenses of Rs. 1 lac in my Profit and loss account as there was not much profit earned during the year. I showed it as Advance Salary paid.

I want to know whether this Advance Salary can be booked as expense in future years to come when I want to adjust excess profit earned during the year.

My return is filed under Section 44AD.

Please help me in this matter.

Regards,
Divyesh Jain

Dhirajlal Rambhia

Dhirajlal Rambhia

(Expert)

20 September 2021 Section 44AD, declaration of profits under presumptive assessment, does not mandate any such expenditures to be carried forward to future years, including depreciation.

DIVYESH JAIN

DIVYESH JAIN (Querist)

20 September 2021 Ok, so does that mean that I can directly declare 8% as profit on the turnover amount without actually incurring the expenses.