Hey there! So you’re running your own business or practicing your profession. That’s amazing! You’re focused on your clients, your craft, and your growth. But then there’s that one word that can cause a little stress: taxes.
It can feel like a jungle of rules, especially around things like bookkeeping, tax audits, and something called “presumptive taxation.” But don’t worry. Think of this as your friendly map. We’ll walk through it step-by-step, figure out what applies to you, and answer the questions you’ve probably been Googling.
First, the Paperwork: Do You Need to Keep Detailed Books?
Running a business means paperwork, but when does the tax law say you absolutely must keep detailed financial records? It’s simpler than you think.
- If you’re a specified professional (like a doctor, lawyer, architect, or designer), you need to keep books if you earn more than ₹1.5 lakh a year.
- If you run a business (as an individual or HUF), the rule kicks in if your sales cross ₹25 lakh OR your profit crosses ₹2.5 lakh in a year.
If you fall below these numbers, you’re not legally required to maintain a full set of books, but it’s always a good habit!
The Financial Health Check-up: What’s a Tax Audit?
Think of a tax audit as a mandatory financial health check-up ordered by the tax department. A Chartered Accountant reviews your books to make sure everything is accurate. You’ll need one if:
- Your business turnover crosses ₹1 crore. (Good news! This limit jumps to a whopping ₹10 crore if more than 95% of your transactions are digital. Go cashless! )
- Your professional receipts cross ₹50 lakh.
We’ll talk about one more situation where an audit becomes necessary a little later.
The “Easy Mode”: The Presumptive Shortcut (44AD & 44ADA)
Now for the best part. The government knows that small businesses don’t have time for complex accounting. So, they created a wonderful shortcut called the Presumptive Scheme.
It’s like saying, “Instead of tracking every single rupee, let’s just assume your profit is a certain percentage of your sales.”
For Businesses (Section 44AD)
If you’re a resident individual, HUF, or a partnership firm (but not an LLP) with a turnover under ₹2 crore (or ₹3 crore if you’re mostly digital), you’re eligible!
You simply declare your profit as:
- 6% of your digital turnover (from UPI, cards, bank transfers, etc.).
- 8% of your cash turnover.
That’s it! No detailed books needed, no audit required.
Who can’t use this shortcut? This easy mode isn’t for those earning commission/brokerage, running an agency, or for specified professionals.
For Professionals (Section 44ADA)
This is a fantastic deal for specified professionals (doctors, lawyers, designers, IT consultants, etc.). If your annual receipts are under ₹50 lakh (or ₹75 lakh if you’re mostly digital), you can use this shortcut.
You just declare 50% of your receipts as your profit. Simple as that.
Your Quick Cheat Sheet: The Limits at a Glance
Feeling a bit lost in the numbers? Here’s a simple cheat sheet.
Your Questions, Answered!
Let’s tackle some of the most common head-scratchers.
1. That big GST question! Do I include it in my turnover?
Generally, no. As long as you’re tracking your GST collections separately and not mixing them with your sales revenue in your P&L account, you don’t need to include it when checking these limits.
2. So, if my profits are low, am I automatically in for an audit?
Not necessarily! Let’s say you chose the “easy mode” but your actual profit was lower than the 6%/8% or 50% benchmark. You’re free to declare that lower profit, but an audit is triggered only if your total income for the year is still above the basic tax-free limit (₹2.5 lakh). If your income is below that, you can declare lower profits without needing an audit.
3. What’s this 5-year “lock-in” I’ve heard about?
Ah, the catch! If you use the 44AD business shortcut one year and then decide to opt out the next year (by declaring lower profits), the law says you can’t use the shortcut again for the next five years. It’s a “cooling-off” period where you’ll have to maintain books and get audited if your income is above the basic limit.
4. My business made a loss. Can I still use the shortcut?
Unfortunately, no. The presumptive scheme is only for declaring profits. If you’ve made a loss and want to carry it forward to reduce future taxes, you have to go the traditional route: maintain books, get an audit, and file the detailed ITR-3 form.
5. I chose the shortcut. Can I still claim my rent and salary as expenses?
No. The 6%, 8%, or 50% rate is treated as a package deal. The law presumes that all your expenses are already accounted for within this percentage. You can’t claim any further business deductions on top of it.
Hopefully, this clears things up! At the end of the day, these rules are just about finding the right path for your unique business. Choose the one that fits, keep good records, and you can get back to doing what you do best—building your dream.
*****
Disclaimer: The information provided in this article is for general informational and educational purposes only. It is not intended as, and should not be construed as, professional legal, financial, or tax advice. The tax laws are complex and subject to change, and their application can vary widely based on the specific facts and circumstances involved. You should consult with a qualified Chartered Accountant or tax professional for advice tailored to your individual situation before making any financial decisions. Reliance on any information provided in this article is solely at your own risk.
Author Bio
FY 2024-25 the business code 14005 is not listed under section 44AADA, which code is to be adopted in absence of code 14005 ?