GP and NP show in it returns

Based on the query posted by the user in the forum screenshot, here are the solutions to the two questions regarding Income Tax in India for Financial Year 2020-21 (Assessment Year 2021-22):

1. Maximum and Minimum GP (Gross Profit) and NP (Net Profit) to Show

• Minimum Profit: Under the presumptive taxation scheme of Section 44AD, since all transactions are cash sales, the assessee must declare a minimum Net Profit (NP) of 8% of the total turnover. (If any sales were digital/bank transactions, the minimum would be 6% for that portion).

• Maximum Profit: There is no upper limit or maximum GP/NP prescribed under the Income Tax Act. If the actual book profits are higher than 8%, the assessee is legally required to declare the higher actual income.

• Gross Profit (GP): The Income Tax Act does not mandate a specific minimum or maximum Gross Profit percentage; it primarily regulates the Net Profit or presumptive income rate.

2. Applicability of Section 44AD vs Section 44AB (Tax Audit)

• Turnover Analysis: The assessee's turnover is ₹189 Lakhs (₹1.89 Crores), which is below the standard ₹2 Crore threshold for presumptive taxation under Section 44AD.

• Section 44AD Applicability: The assessee is eligible to opt for Section 44AD because the turnover is under ₹2 Crores. If they declare an NP of 8% or more, they do not need to maintain regular books of accounts or get them audited.

• Section 44AB (Tax Audit) Applicability:

  • Normally, a tax audit under Section 44AB is triggered if business turnover exceeds ₹1 Crore. However, under Section 44AD, an exemption is granted up to ₹2 Crores.

  • When Audit is required: If the assessee wants to declare a Net Profit lower than 8% of the turnover and their total income exceeds the basic exemption limit, then a Tax Audit under Section 44AB becomes mandatory, and they must maintain formal books of accounts.

Summary

For a cash-based retail rice business with a turnover of ₹1.89 Crores, the assessee can opt for Section 44AD and must declare a minimum Net Profit of 8% (no maximum limit exists). A tax audit under Section 44AB will only apply if the declared Net Profit falls below this 8% threshold.