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Sec 44ad: profits

sachin (Service) (55 Points)

17 August 2013

Dear all, As sec 44ad we can presumed income 8% However if bank required document of profit and loss and balance sheet for sanctioning loan. Then as per income tax return income and profit and loss income is different I.e. profit and loss a/c income is more than 8% which shows in income tax return. 1. Whether we can prepare books after return filing and submit p& l and BS to bank for loan 2. Whether there is difference between both income as per income tax and P & L is it OK for loan sanction and other requirement. Kindly reply Yours faithfully Sachin dagde

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2 Replies

Pradeep Kamath (Chartered Accountant) (134 Points)
Replied 18 August 2013

Dear Sachin,

As per Section 44AD(1):

"Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent. of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession"."

Let us understand your case in two parts:

1. Where actual profits are less than 8% - It does not make sense to offer 8% profits for income tax. Therefore there should be no difference in profit as per books and profit as per income tax.

2. Where actual profits are more than 8% - The erstwhile section 44AF used the words "a sum higher than the aforesaid sum as declared by the assessee in his return of income". However, currently section 44AD uses "a sum higher than the aforesaid sum claimed to have been earned". If you are claiming that you have earned a profit exceeding 8%, you will have to offer the actual profits for tax.

Then why section 44AD?

This section therefore is for the benefit of those assessees whose turnover is less than the amount specified under section 44AA, and do not maintain books of accounts.

Regards,

Pradeep.