Presumptive taxation query


Saurabh Makwana (Proprietor)     18 May 2018

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As per presumptive taxation under 44ADA, income is to be shown 50% of gross income

Lets say my income is Rs.100 and actual profit is Rs.70, but i am showing profit of Rs.50 in my income tax return.

 

After some years, lets say after 3 years my actual networth will be Rs.210 (70 * 3 years). However, my networth as per income tax return should be only Rs.150 (50 * 3 years)

 

Will income tax department ever ask my about my remaining Rs.60 (210 less 150)??

 

And if they ask, can i tell that i have shown bare minimum profit as per income tax provision?

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CA Sunil Kumar (Chartered Accountant)     18 May 2018

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Income tax department would apply section 270A for under-reporting of income. Under- reported income shall liable to penalty in addition to tax. Penalty can be 50% of tax payable on under- reported income. So you are advised to disclosed total income in your ITR.

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Saurabh Makwana (Proprietor)     18 May 2018

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Sir i have received advice from someone that, if you are having total receipts under Rs.50 lacs, then you need not to worry. It is ok if you simply show profit as 50% of total income irrespective of actual profit and still it is legal.

 

Because of this thing, i am in dilemna.

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Saifullah Khalid (Autodidact/Curious )     18 May 2018

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Originally posted by : CA Sunil Kumar
Income tax department would apply section 270A for under-reporting of income. Under- reported income shall liable to penalty in addition to tax. Penalty can be 50% of tax payable on under- reported income. So you are advised to disclosed total income in your ITR.


NO , In given  scenario nothing sort of "Under reporting of income " or "Mis-reporting of income " applicable .... Only if assesse can fall out of " 44ADA " then only  "Under reporting of income " or "Mis-reporting of income " will attract .... case laws available ..... "presumptive taxation "  legal interpretation  is very well settled issue in law now .... in a country like ours where tax compliance is very low , these types of "Presumptive taxation schemes  " are boon for small/un organised sector tax payers and will help more and more people to come under tax net and hassle free compliance ....

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rama krishnan   19 May 2018

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44ADA. [1] Notwithstanding anything contained in sections 28 to 43C, in the case of an assessee, being a resident in India, who is engaged in a profession referred to in sub-section [1] of section 44AA and whose total gross receipts do not exceed fifty lakh rupees in a previous year, a sum equal to fifty per cent of the total gross receipts of the assessee in the previous year on account of such profession or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the assessee, shall be deemed to be the profits and gains of such profession chargeable to tax under the head "Profits and gains of business or profession".

definitely it's under reporting of income. as per the section, you should declare minimum 50% of your total receipts even if your net profit from the profession is below 50% if you want to avoid audit of your accounts. but if your net profit is more than 50% of total receipts then you have to declare only that amount as your total income or else it will be considered under reporting of income

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Saifullah Khalid (Autodidact/Curious )     19 May 2018

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Originally posted by : rama krishnan
44ADA. [1] Notwithstanding anything contained in sections 28 to 43C, in the case of an assessee, being a resident in India, who is engaged in a profession referred to in sub-section [1] of section 44AA and whose total gross receipts do not exceed fifty lakh rupees in a previous year, a sum equal to fifty per cent of the total gross receipts of the assessee in the previous year on account of such profession or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the assessee, shall be deemed to be the profits and gains of such profession chargeable to tax under the head "Profits and gains of business or profession".definitely it's under reporting of income. as per the section, you should declare minimum 50% of your total receipts even if your net profit from the profession is below 50% if you want to avoid audit of your accounts. but if your net profit is more than 50% of total receipts then you have to declare only that amount as your total income or else it will be considered under reporting of income


You are missing the point...look at those above higlighted words in RED ... when some thing is optional (OR) and "Deemed" then as per law the authority will have to consider this "deemed" income as final taxable income for taxation purpose ..... Presumptive taxation is totally a different assesment process  ... as per normal assesment process , to arrive at net taxable final income of an assesse the formula to follow is (GROSS INCOME - EXPENSES ) - deductions (if any) =  net taxable income..BUT presumptive taxation provisions  are " Special provisions " where a specific percentage of Gross income is to be considered as final net taxable income for taxation purpose ...
This new special provision of presumptive taxation for professionals was added to IT act last year (A.Y 17-18) after  " Justice Easwar committee "recommended  this in its report , though the recommended percentage was around 33% but Government finally adopted 50% rate as minimum specified rate of presumption .

And what courts have to say on this , below is the excerpt from one of case (Allahabad High Court -- The Commissioner Of Income Tax-I, ... vs Shri Nitin Soni)relating to presumptive taxation scheme (though its regarding 44AE which is another presumptive  section but still applicable to all presumptive sections )  ::: -

It is not in dispute that the assessee has got eight trucks. It was also not disputed by the learned standing counsel for the department that the provisions of Section 44AE of the Act are applicable. Emphasis was laid by him that the additions made in the hands of the assessee was justified as the assessee has income more than that which is calculated as per Section 44AE of the Act. It is difficult to accept the aforesaid submission of the learned standing counsel. The very purpose and idea of enactment of such provision like Section 44AE of the Act is to provide hassle free proceedings. Such provisions are made just to complete the assessment without further probing provided the conditions laid down in such enactments are fulfilled. The presumptive income, which may be less or more, is taxable. Such an assessee is not required to maintain any account books. This being so, even if, its actual income in a given case, is more than income calculated as per sub-section (2) of Section 44AE, cannot be taxed.

 and in another paragraph of the judgement the High court observed ::: -

Resultantly, the addition made by the Assessing Officer due to increase in the capital cannot be taxed under Section 56 of the Act as income from other sources as the accretion, if any, in the capital is relatable to profit from transport business of the assessee

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Saurabh Makwana (Proprietor)     19 August 2019

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Sir, what a wonderful reply given by you. I appreciate it!


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