Tax Audit Applicability For Freelance Software Developer having profit less than 50% of Turnpover.

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This discussion addresses whether a freelance software developer with a turnover of £2 lakhs and expenses exceeding this amount, resulting in a loss, requires a tax audit. The applicability of the 50% profit rule under Section 44ADA is explored, noting it only applies to specific professions and requires opting into the presumptive taxation scheme. If not previously claimed, the developer can choose not to file under 44ADA and maintain accounts, avoiding an audit. Alternatively, for a low turnover, filing under 44ADA might be considered despite the loss, balancing tax costs against the benefits of presumptive taxation.

Sudipta Das

Sudipta Das (Querist)

03 August 2024 Turnover 2 Lakhs
Business Expenses incl Depreciation : Rs: 215656.
Income From Salary : Rs 24,00,000.
All payment received in electronic modes.

Is Tax Audit mandatory in this case to show loss ??

Assessee has never had income from profession previously.

CA ANILKUMAR B.COM FCA DISA

CA ANILKUMAR B.COM FCA DISA (Expert)

03 August 2024 Unlike business, audit is applicable in profession where profit offered is less than 50% and total income exceeds the basic exemption limit.

Nikhil Kaushik

Nikhil Kaushik (Expert)

03 August 2024 insufficient information to say whether audit is applicable or not. The 50% rule applies only if you are offering income to tax under 44ADA. However, 44ADA is applicable to a select few professions covered under 44AA(1). For other professions, 44ADA is not applicable.

So, 1. If you have not ever claimed 44ADA before, you can decide to not file the return under presumptive taxation and just maintain accounts. In such a case, no audit is applicable anyway.

2. Given that your turnover is just 2 lakhs, if you are covered under 44AA(1) professions, you might still prefer to file the return under 44ADA as the cost difference for paying additional tax on Rs 100000 (50% of the turnover) may not be significantly different from the cost of maintaining books of accounts and the potential benefit of using 44ADA in the future years.

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