sec. 44AD

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DEVI SINGH PARIHAR (Querist)

20 July 2016 one of firm is registered under vat and filling Itr as per under sec. 44AD and net sales was 40 lacs excluding vat and vat separetly charged in bill and gross sales including vat was Rs. 42 lacs .so on which amount we have to declare 8%net profit whether Rs. 40 lacs net sale or Rs. 42 lacs gross sales.We maintain input output account separetly another include in trading account.

CA AJAY KUMAR AGRAWAL

CA AJAY KUMAR AGRAWAL (Expert)

20 July 2016 Only on Turnover (exclusive of VAT etc) i.e. 40 Lakhs.

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DEVI SINGH PARIHAR

DEVI SINGH PARIHAR (Querist)

20 July 2016 sir, but. sec. 43ad language say 8% of gross receipt or gross turnover so what is meaning gross receipt/gross turnover.

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

23 July 2025 You're right to be cautious about the terminology used in **Section 44AD** and **Section 43B** (as related to gross turnover). Let's break it down clearly to understand how **gross receipts** or **gross turnover** should be treated, especially when **VAT** is involved.

### 1. **Definition of Gross Receipts/Turnover under Section 44AD:**

* **Section 44AD** applies to **small businesses** with a turnover of up to **Rs. 2 Crore** and offers **presumptive taxation** at **8% of the turnover** (or **6% for digital receipts**).
* The key term used in **Section 44AD** is **"turnover"** (not profit), and this **turnover** refers to **the total receipts or sales of goods or services** before any deductions like VAT, discounts, or returns.

### 2. **Difference Between Gross Receipts and Net Sales:**

* **Gross Receipts/Gross Turnover** is the total value of goods and services **sold** or **rendered** during the period, including **VAT**, **GST**, or any other indirect taxes charged separately.
* **Net Sales** is the amount received **after deducting VAT**, **returns**, or **discounts** from the total sales.

Therefore:

* In your case, where the net sales are Rs. 40 Lakhs (excluding VAT) and the gross sales are Rs. 42 Lakhs (including VAT), the **turnover under Section 44AD** should be based on **net sales excluding VAT**.

### 3. **Treatment of VAT under Section 44AD:**

* **VAT** is not considered part of the **turnover** for the purposes of computing profits under **Section 44AD** because it's a tax collected on behalf of the government.
* The key point here is that **only the amount of sales before VAT** is included in the **turnover** for **Section 44AD** purposes.

### 4. **Conclusion**:

* **Declare the 8% profit** on **Rs. 40 Lakhs (Net Sales)**, which excludes VAT.
* The **Rs. 42 Lakhs** (gross sales including VAT) is not to be considered for calculating the presumptive income under **Section 44AD**.

### Why This Distinction Matters:

* **Section 44AD** specifies that the calculation should be based on **"turnover"**, which typically refers to the amount **before VAT, GST, or any other indirect taxes**.
* Since VAT is not considered part of your firm's income (it is a tax collected from customers), **only the Rs. 40 Lakhs** should be used to calculate the presumptive income.

So in your case, you would declare **8% of Rs. 40 Lakhs** (i.e., Rs. 3.2 Lakhs) as the **presumptive income**.

Would you like more details on the filing process or any further clarification on tax audit and related sections?

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