This is the main problem. Different experts have different view points on this section 44ad. In this thread only, there are 2 different viewpoints and interpretations,

Similarly there are tons of contradictory viewpoints all over the web, which is very confusing.

Dear friends,

After reading these posts, a question arises to me.  If a professional who has always declared income around 70% of gross receipts till AY 2016-17, now declares income at 50% of gross-receipts in terms of S.44ADA for AY 2017-18, what will the position as to "under reporting" and penalty u/s 270A?

Please express your considered views.

Originally posted by : Jayesh Thakkar
	Dear friends, After reading these posts, a question arises to me.  If a professional who has always declared income around 70% of gross receipts till AY 2016-17, now declares income at 50% of gross-receipts in terms of S.44ADA for AY 2017-18, what will the position as to "under reporting" and penalty u/s 270A? Please express your considered views.

Nobody knows for sure practically. Everybody have their own interpretations. As you can see from the replies above.

@ Mr. Jayesh Thakkar:::

"......If a professional who has always declared income around 70% of gross receipts till AY 2016-17, now declares income at 50% of gross-receipts in terms of S.44ADA for AY 2017-18, ........."

May I know what intention you have to declare the income at 50%, when the same has been declared at 70% in previous years?????

Here lies, the answer of all these discussion.......

The interpretation is only difficult for those who wants to declare minimum, but wants to get the protection for high capital utilization.

There is no restriction for declaration of higher percentages, then where the problem arise?

I repeat the same points declared with earlier threads of Mr. Kartik viz. /forum/details.asp?mod_id=376053; where its clear that in case you want to hide any thing its upto your risk, but department has given liberty u/s. 44AD or 44ADA. And do you think, there is only this one section for department to invoke for your under-reporting?

I totally agree with Dhirajlal Sir. 

@ Jayesh Thakkar & @ Karthik, 

If one could u/s 44ADA report profits of only 50% of gross receipts, when actuals were 70%, dont you think this would open up the gates for tax-evasion to the extent of this 20%. Eventhough not easy, all one would have to do in that case, was find a couple of people for partners and float a few firms, plan accordingly so that this 20% of 'TAX FREE' receipts could be increase manifold.

When a provision can be viewed from 2 different angles, then there can only be 'interpretations', until the Courts step in to cement a single view.

However, for now, what we can do, is apply the Rule of Harmonius Interpretation. The intention of the lawmakers in bringing section 44AD into effect, was to exempt the small businesses/professionals from maintaining books of accounts. They never intended make any leeway for assessees to make some windfall tax-evasions by reporting lesser than actual income.

Besides, even the advanced material hosted on INCOMETAXINDIA.gov.in states that actuals should be disclosed wherever it exceeds 8% or 50% as the case may be.

Plz Refer: /forum/details.asp?mod_id=378062&offset=2

Besides, if the Department finds that there has been a serious evasions u/s 44AD, then it can rain down a barrage of penalties on you u/s 271(1)(c), 270A,etc so as to keep you skipping through courts for the next half decade. 

Tax evasion has never been the intention of any of the sections of Income tax act. Literal Interpretations are very easy to make, and through experience, one may learn that being practical always pays off better.

@ Dhirajlal, @ Sanjay. I get that. I am in favor of reporting higher % and I will advise that to everyone. I was always skeptical, that's why I asked these questions to get more clear view on this topic. I've been asking and doing research on the same for over a year now, and I've never got a uniform answer.

You have to agree that the confusion is there when you get 2 different point of views by differemt CAs/tax experts. Just look at the post made by caclubindia on their FB page : https://www.facebook.com/caclubindia/posts/10154746372614854 . More than half are saying "yes" and other haff saying "no". Same situation is offline where I've consulted not just few but many CAs.

That's why for us who rely on the advice of tax professionals, this gets confusing.as everybody wants to save as much tax as possible legally.

The recent news of reducing deemed profit from 8% to 6% suggests that no matter what your real profit is, it is absolutely fine to pay income tax on this deemed profit only. Am I right?

The Govt. said that this is being introduced as tax relief, which  means to further reduce the tax burden from 8 to 6%, no matter what your real income is. If this is not the case, then why it's being considered a tax relief, when you have to show your real profit only?

Would like to hear everyone's view on this. I would really appreciate if more people could shed some light on this.

Regarding the recent Press release regarding the reduction of Presumptive tax rate from 8% down to 6% for digital receipts:

Since Shri. Arun Jaitley had termed the above reduction in rate as a TAX RELIEF for all small businesses, many have interpreted that every assessee who opts for Section 44AD, may now declare only 6% of Gross Receipts regardless of the level of actual profits.

However I choose to disagree with the above interpretation. I would say, only a small business (say, having receipts vide digital means only) having meagre profit ratio below 6%, may get the benefit of "TAX RELIEF". Earlier, if he did not want to maintain Books of accounts, he had to opt for Section 44AD and pay tax on atleast 8% of Gross receipts (eventhough actual profits were less). However, once the above amendment is brought in, he may have to pay tax only on 6% of Gross Receipts (instead of 8% earlier). This is the Tax Relief (2% of gross receipts) that Shri. Arun Jaitley seems to have referred to. Hence, any assesse earning more than 6% profits, still has to declare such higher profits as income. 

The "Relief" will be available only to the ones who didnt want to maintain Books of accounts, receive payments in Digital modes AND whose actual profits were less than 8% earlier. Such assessee may now declare 2% lesser income.

Hence the position of having to declare 6% of Gross Receipts or Actual profits, whichever is higher, still seems to stand strong inspite of the proposed amendment.

In the case of businesses receiving income in cash, the tax rate appears to be the same as earlier (8%).

For now, We'll just have to wait and see how this amendment ends up in the Finance Act 2017. 

You may be earning 50% profit but you can opt u/s 44AD and declare only 8% profit no body will question you. You can deposit 50% profit in the bank acs and can make investment legaly it is permitted. Case laws are there in favour of it.

270A is not attracted in such a case. Declaring lower profit of 8% is legally permitted u/s 44AD.

You may be earning 50% profit but you can opt u/s 44AD and declare only 8% profit no body will question you. You can deposit 50% profit in the bank acs and can make investment legaly it is permitted. Case laws are there in favour of it.

270A is not attracted in such a case. Declaring lower profit of 8% is legally permitted u/s 44AD