CA Umesh Sharma
Arjuna (Fictional Character): Krishna, Independence Day of our country is coming closer on 15th August. All citizen lives happily because of independence. Similarly when as per income tax provisions small taxpayer fells independence?
Krishna (Fictional Character): Arjuna, very well said, every people needs independence at home, at work, etc. All make efforts to get independence. Our country has given independence to each and every citizen being a democracy. Like Income Tax Act has also given independence to the small tax payers for maintaining books of accounts and accordingly paying tax under section 44AD. These Businessman has 2 options, 1) show profit at 8% of turnover and has taxable income or 2) If he want to show less profit and have taxable income then tax audit is compulsory. Further if profit is below 8%, then scrutiny, enquiry, etc may be invited.
Arjuna: Krishna, How 8% profit under section 44AD is required to be shown?
Krishna: Arjuna, under section 44AD the businessmen whose annual turnover or receipt is less then Rs. 1cr then he can show profit at 8% of annual turnover or more and on the said profit he has to pay tax. And one more condition of having taxable income above basic exemption limit is there. Only the information related to the turnover or receipt needs to be maintained. Maintenance of books of accounts as per section 44AA is not necessary, that’s why it is an easy way. For e.g. If the annual turnover or receipt of the cloth merchant is Rs. 80 Lakhs then he has to show at least profit at 8% i.e. Rs. 6,40,000 and on this amount he has to pay tax. On this he may avail deduction as per section 80 and he has to pay the assessed tax as per the slab rate. The due date of filing return as per section 44AD is 31st August.
Arjuna: Krishna, what if the tax payer opt for tax audit?
Krishna: Arjuna, if tax payer’s 1] profit is less than 8% and 2] if its taxable income is more than the tax exemption limit (Rs. 2.5 lakh) then he has to maintain the books of accounts as per section 44AA. Further he has to get his books of accounts audited from a Chartered Accountant. For e.g. If the annual turnover or receipt of the cloth merchant is Rs. 80 lakhs and his profit is 4% i.e. Rs. 3,20,000, then he has to maintain the books of account and also he has get his accounts audited from Chartered Accountant. Tax payer has given the independence to choose any one option every year. Tax payer should choose appropriate and right option considering the income and expenses. If the tax payer wants to opt for this option i.e. to get his accounts audited then the due date for filling return is 30th September.
Arjuna: Krishna, the option of showing profit at 8% is very nice. Who all can take benefit of this option?
Arjuna: Krishna, what are the features of this 8% profit option?
Krishna: Arjuna, the important points to keep in mind while opting for this option are:
Arjuna: Krishna, what one should learn from this?
Krishna: Arjuna, department brings many such schemes for the taxpayers but the taxpayers due to lack of knowledge does not take benefit of these schemes. In every law provide some or some type of schemes, we should study them properly and take the advantage of them. Under this option of 8% profit maintenance of books of accounts as per income tax is not necessary but as per sales tax, service tax, etc. maintenance of books of accounts is necessary. This is contradiction between two laws. So tax payer should maintain the proper books of accounts and take benefit of schemes.