Should I get account audited? HELP First timer!!

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SosMe (Querist)
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20 July 2011
Im working from home as a freelancer by creating websites & running advertisements on them.Total Income for F.Y.2010-11 from these is 19 lacs.

My questions are,
1) Should i need to maintain books of account (section 44AA)?Remember i work from home developing websites.

2) If account books are required, should i get it audited by CA (section 44AB)?

3) I think i have to file returns as 'Income from Business other than speculative business' head.IN this case, what code should i choose for Nature of Business?

4) If audit is not necessary, Can i file the tax before July 31st & prepare account books?

As of now, I have not registered any company or im not maintaining any books of accounts.Will soon register a company.

PLEASE GUIDE ME, as IM VERY CONFUSED ON WHAT TO DO

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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20 July 2011 Working from home as a freelancer or Working in a office makes no difference from income tax point of view, as the same rate of tax is applicable on the income.

.

Creating websites & running advertisements on them can be treated as Business.

.

Total Income for F.Y.2010-11 from these is 19 lacs.
-----------------------------------------
Total income has got a different meaning in Income Tax on which tax is leviable.

You have to compute your business under the head Income from Business & Profession.
Say 25.00 Lacs is your gross receipts then out of it you are allowed to deduct expenditure incurred in connection with the business. If the total of all the expenses is 6.00 lac. Then 25-6=19.00 lac is your Business Income.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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20 July 2011 Your questions are,
1) Should i need to maintain books of account (section 44AA)?
Remember i work from home developing websites.

You have to maintain books of account forgetting the fact that you are working
from home.

2) If account books are required, should i get it audited by CA (section 44AB)?

In case of business the limit for Audit U/s 44AB has been prescribed to Rs. 60.00 lacs. As such you are not required to get the accounts audited.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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20 July 2011 3) I think i have to file returns as 'Income from Business other than speculative business' head.IN this case, what code should i choose for Nature of Business?

Reply-

You'r thinking in right direction and your head of income is also correctly mentioned by you.

You can show Advertising as your business.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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20 July 2011 4) If audit is not necessary, Can i file the tax before July 31st & prepare account books?

Reply-

As mentioned above audit is not necessary.
Under the new provision of Section 44AD, you can show 8% of your gross receipts as Income. But, it advised for you to show higher income so as your savings, computers, investments, bank balances, etc could be covered. If you show income under section 44AD, Books of account are not required to be maintained. Nor you will require to show all the details of your expenses.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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20 July 2011 In the 5th line of answer 4) the words "gross profit" may be read as "gross receipts".

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CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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20 July 2011 Thank you Warrier Sir, I have modified the word "gross profit" with " gross receipts".

Q_
As of now, I have not registered any company or im not maintaining any books of accounts.Will soon register a company.

PLEASE GUIDE ME, as IM VERY CONFUSED ON WHAT TO DO

Reply-
There is no substitute FOR accounting.
For developing your business it is must.
Keeping in view the tremendous opportunities in the web-advt. business,
I wish you to form a company. Then only you can establish the "Brand".

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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20 July 2011 Bafna Ji

"Of" may be replaced as "for".

Message likes : 1 times

SosMe

SosMe (Querist)
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20 July 2011 Mr.Paras Bafna - Thank you sir for clearing my doubts.But accounts is an interesting subject making me ask few more queries...

1) My business income is 19lacs & so that has to be declared as such.

2) I live with my parents, so there are not any expenses that i bear, except for my mobile bill.Hence most of the amount is lying in savings account only.----> IN this case can I opt to show my income under Section 44AD?
One more reason is Im have not maintained account books for F.Y 2010-11

3) How about making use of the 'NO ACCOUNT CASE' in Balance sheet , P & L given in ITR4?

4) Do I have to file ITR 4S incase i want to make use of this Section 44AD OR can it be done through ITR 4 itself?

5) U mentioned that as per Sec 44AD,8% of gross receipts as Income.So in my case, will i have to declare 8% of 19lak = 1,52,000 as income & rest to be taken as expenses? Correct me if iam wrong!

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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21 July 2011 You can show your income under section 44AD in ITR 4S.

In case you show income @ 8% of turnover at 152000/ but your bank balance shows 15.20 lacs, and the deposits are represented by your income only, then in such situation declaring a lower income then this can be problematic. The Income could be well treated as undisclosed income.

Section 44AD not requires that books of account are to be maintained when you comply the condition of 8%. You can claim that you have earned higher then 8%.

You have to show only 4 items . Sundry Debtors-Sundry Creditors Stock and Cash.
First 3 may be NIL in your case but while showing cash in hand , again you have to take care of your claimed income.

So, the basic formula in declaring your income is
Net Deposits in Bank during the FY+ Cash Balance +48000( Personal Exp -Min)< Income declared by you.

SosMe

SosMe (Querist)
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21 July 2011 Yes, as u said if i just show 8% of turnover of 19lacs, it would mean remaining funds as undeclared.

At the same time, could you give an example of how could i declare my income in such a way that the income earned through receipts (19 lak) tallies with that Sec 44AD (8% of turnover)

For instance, In ITR 4S ->
Gross receipts = 19lacs
Total presumptive income under Sec 44AD = 19lacs

Isnt there any problem in filing income through presumptive business? Will my business (web development) come under presumptive business?

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