Section 44ad : profit more than 8% of turnover

Dear Vinayak,

                    If your income is higher than 8% than such higher amount shall be treated as your income i.e. 10 lakhs in your case. As per provisions, you have to show a minimum amount of 8% profits of gross receipts. Also, Please make sure other incomes i.e. other than business namely interest and other incomes shall be treated differently and cannot be included in 44AD receipts.

                   I have no practical knowledge about 276C but I think in your case its not evasion since your are showing profits 10lacs. If you show 1.6 lacs than

1. Either your return will be treated Defective and to rectified.

2. Or you will receive a Demand Notice with your Assessement Intimation u/s 143(1).

Please wait for others to Answer.

There is no voilation of any section because you are simply adopting sec.44AD and after adopting, outcome of such, shall have validity in the law.

sec. provides that you have to show minimum 8% profit and you are showing such in accordance with law as well then question of voilation is not correct.

how can there be evasion of income , when act only states one MAY declare higher than 8%.??

Originally posted by : Zulfikar Surti
	Prima facie no evasion but when scrutiny will be held, you would have to furnish satisfactory evidences for expenses amounting Rs. 18.4 lac

 Interesting; however there is no requirement to keep books of account; also benefit of a lot of expenses (section 30 onwards) is presumed to be given already before arriving at 8% figure.

So wouldn't the AO have to take the assessee at this word that out of the turnover rest were expenses?

In any case, since the section 44AD specifically superceded sections 28 to 43C (which define how to calculate profits - including which expenses are deductible and which are not) doesn't a ruling that "it is deemed that profit is 8% of turnover (for the purpose of income tax)" automatically rule out actual expenses from the computation of profit?

The confusion in my mind is because the act says minimum declaration is 8% and the assessee may claim higher - there is no requirement to claim higher

Originally posted by : Zulfikar Surti
	Prima facie no evasion but when scrutiny will be held, you would have to furnish satisfactory evidences for expenses amounting Rs. 18.4 lac

I looked at some replied from lawyers blogs - as far as scrutiny is concerned, once an assessee declares himself to be eligible for 44AD there are only two points that the AO can contend:

1. whether the trunover/gross-receipts etc. are correctly declared; for this he can ask for any reasonable information (bank account statements, sales receipts etc.) but can't ask for books of account even if the assessee has actually mainteined those. This is settled in law.
2. based on the turnover and other criteria whether the assessee is eligible for claiming benefits onf 44AD in the first place

8% of turnover is NOT real income - 8% of turnover is income for the purpose of assessment of taxes;  The two are different legal concepts (e.g. in accrual based accounting income is removed in time from actual receipts; a depreciation is not a "real" expense and hence different methods of computation result in different net income for taxes)

By the way, no need to get emotional, I don't really have 10lacs income from a 20lacs turnover - my turnove is 0; I'm a salaried person. But I'm planning to start something soon and want to get some clarity.

What I can make out is you are asking for fabrication of books to the extend if more than 8% is being shown. Basically, as i can see, 10 lakh income from receipts 20 lacks can occur in either service sector or professional income. I am not sure but as per sec 44AA, you are liable to maintain books of accounts when it come to specified professions(not sure in 44 AD case). The section says that the expesnes are deemed to be allowed i.e AO cannot question the eligibility of expenses but what if your expenses do not occur at all. in that case AO can add back the same to your taxable profis. i.e If i am having a profession and receipts 20 lacs that doesnt mean i can show entire 18 lacs as salary. It has to be justified under various terms. It is also legally invalid. Avoid Tax avoidance, Seek Professional Help, Help Nation Grow. 

Originally posted by : Rohit Tulshyan
	What I can make out is you are asking for fabrication of books to the extend if more than 8% is being shown....

I am not asking for fabrication of books. I'm asking what is legal. Hence I asked for section 276 in the very first post - that one has penal provisions for tax evasion. Tax avoidance is legal under law - when someone is buying an insurance policy solely to claim deductions that is legal and that is tax avoidance.

Also there is no question of fabricating any books when none have to be maintained (and the AO can't ask for the same to be produced under scrutiny - there are settles cases on that; even if an assessee voluntarily provides those and later rectracts the AO can't dispute the retraction; AO can only dispute the turnover; he can't even question a cash receipt or expense under Rs. 20000 if it is related to the gross receipts or turnover already declared).

I'm trying to see if there is a loophole in law here - that will make this tax-avoidance legal.

Y will one preserve vouchers, if there is no need for him to maintain books of accounts?