Introduction: Income tax practices in India can be complex, and misconceptions and mistakes can often lead to financial and legal challenges for both taxpayers and professionals. In this article, we address some important issues that are commonly misunderstood or overlooked in income tax matters. Understanding these issues can benefit all stakeholders in India’s income tax law. They are being presented in a synchronized format as:
1. Section 44AD- This section is although beneficial enactment in nature because of its noble intention to provide great relief to the small businessmen from the yoke of maintaining books of accounts u/s 44AA and tax audit u/s 44AB.But one must be careful about the followings while opting for this section as:
A. To show minimum 8% profit in return of income and if profit is shown below 8% then compulsory maintenance of books of accounts and audit require.
B. In partnership there are some conditional dictums to avail this benefit about which one must be careful.
C. Non maintenance of books of accounts does not mean non maintenance of no documents. In this scheme one has to maintain purchase and sales registrar with details of purchasers and sellers, bills/vouchers and bank statement if the return of income is subjected to scrutiny u/s 143(3) or 147 proceeding.
2. Section 40(a)(ia)- This section imposes stringent obligation upon the assesses to deduct tax from the source of income as per the various TDS obligations being imposed by the section 194 rws 195. One has to very careful about his TDS obligation because any default will attract 100% addition of non TDS credit. Many assesses are found to be careless while making payments or receiving payments. This obligation is not only confined in business activities only but also in other spheres like house rent, salary, windfall gains, cash prizes etc and for better monitoring of tax compliance government is using this instrument more and more being most efficient section. It is monitoring provision.
3. section 10(38)- This section even in most recent was a most controversial section for being used widely by money launderers as a easy way to convert unaccounted black money to white by claiming 100% exemption under this section from the long term capital gain as a result wide spread litigations are still going on share capital introduction and penny stock cases. However government has rightly given quietus of this most misused section by limiting the LTCG capital gain exemption of Rs 100000 only. So one has to be very careful about the tax planning since the entire scenario of tax planning is now changed because of that amendment.
4. Cash deposits exceeding 10 lakhs- After coming of AIR system from 2009, there have been huge cash deposits cases being under scrutiny of the department for exceeding 10 lakhs threshold limit u/s 285BA. These cases had mushroomed highest at the time of demonetization in 2019 and now days are going more and more. The main motivation of this enactment is to verify the source of cash deposits exceeding certain limit. So one has to very careful to maintain proper accounts and documents to explain the sources of said cash deposits if being called on scrutiny or in reopening proceeding or in 133(6) proceeding.
5. section 269ST- This section is a extension of already previously existed sections 269SS and 266T to curb the cash transactions. This new section is applicable to all classes of assesses with a stipulation not to give a person Rs 2 lakhs more in a single or composite transaction in a day.
6. 80G- This is one of the most important section being availed by many assesses to get attractive tax deduction as high as 50% or 100% case to case. Few years ago procedure to get deduction u/s 80G was very simple and manual based whereby one could claim deduction on basis of physical receipt of tax donation given by him to the donee. But now entire process has been digitalized by bringing the entire process in e filing portal whereby Donor has to pay through the portal and has to obtain receipt being generated online in the same portal for claiming deduction. This laudable step will bring more transparency in the donation process which like share capital is mired in various controversies and highly litigated.
Income tax practices in India require a thorough understanding of the law and its nuances to avoid common mistakes and misconceptions. Staying informed about sections such as 44AD, 40(a)(ia), 10(38), 269ST, and 80G is crucial for both taxpayers and tax professionals. Adhering to tax regulations and adapting to changes in tax laws can help individuals and businesses navigate the complex landscape of income taxation in India. It’s advisable to consult with tax experts for personalized guidance and compliance.