I am sure every other person you ask will interpret the act differently and recommend different solutions. We work with multiple CA firms from across India, and try to keep up with latest best practices.
I have explained this too many times in the past few years.
In simple words let me put it this way.
When a fixed rate is to be applied itâs called standard deductions which we have in house property (30percent) and Salary (Rs.50000).
In presumptive taxation, the provision clearly says an assessee may declare income NOT LESS than 6 percent. So if he thinks itâs more than that you need to declare it. At the end when you are filing you are declaring that you have disclosed all information to the best of the knowledge. You are clearly misstating when you know your income in 2cr and stating itâs only 12 lakhs.
If your income in 12 lakhs how can you buy a house of 1crore. Your cash flows should match.
This is from the official website of income tax Act.
Why is there even an option to declare more income?
Anyways, this can go on and on and I will restrict it to this. In past I have justified many times but as I have mentioned before everybody just wants to go to a person who saves tax. Doesnât matter how.
I am a CA in practice and I have received multiple notices. Again, letâs not get into the details. Choose whatever convinces you. Remember whoever is filing your return is not responsible for any notice or any demand in future. They have received their fees.
You will be required to fill in the details of your foreign bank accounts in Table A1 and the funds transferred from your bank account to the brokerage account to purchase the securities will be shown Table A2 in Schedule FA.
Interpretation comes from the intention of law. 6% is the bare minimum, if you have 100% profit you will need to show that as mentioned by Jason. Any ways if you think you are right, please go ahead and do it.
If my example of 2 cr. profit and only 0.75% tax paid on this makes sense to you. Then start your own tax consultancy, many traders are paying taxes on actual profits, you will make a lot of money saving their taxes.
This is what even I tell. Ultimately itâs the risk which the assessee is taking. Not the one who is filing. Nowhere a CA is signing your income tax returns.
Just to add on little more.
I have 6 adults in my family. I will now form partnership taking 2 at a time. I can form 15 firms.
Then take 3 at a time. I can form 20 firms. Then 4 at a time. Another 15firms. 5 at a time. Another 6 firms. And last all 6. One more firm.
So I have 57 firms plus 6 individuals. 63 assesse.
Assume I only sell OTM options which all expire worthless. My profit will be at least 100 percent of turnover. So from 63 assessee I can make 126 crores profit. And each one will show 12 lakhs as income. Niceeeee tax planning. Isnât it?
A doctor may say you have cold and another may say you have TB. Will you just go ahead with one who said you have only cold?
@Jason_Castelino : Not clear - did you deal with notices where you used presumptive taxation for a trader? Ofcourse every CA deals with notices - thats not really the question. My question is are you speaking from the point of view of your interpretation or your experience with filing presumptive taxation for FO traders ?
Assume that he did not dealt with any such notices till now. What difference does it make? He has given an example of multiple partnership firms within a family opting presumptive taxation can have 100 crores of profits without paying any tax. Does it make sense to you? If yes, that is great!
I hope we are doing this in the spirit of intellectual debated and nothing more. Atleast thats my intention.
In the example given by @Jason_Castelino : You will need to make 63 PANs and all of them at the same address. I am sure you will be outed by MCA and SEBI before you go there. Hence, the question of presumptive taxation wont even come. Imagine a broker allowing 63 KYC - I dont see any broker in their right minds allowing this.
So not really an example worth considering.
The question really hinges on the point âvoluntarily declare additional profitsâ - which to me means that âif you feel like you shouldâ.
Lets forget about FO traders for a sec.
Can you give an example where this will work ? Meaning what legitimate source of 2 crore profits will require to be filed under presumptive taxation ? Give me an example of 2 crore profits where this is legit where its allowed. Otherwise the whole section appears pretty useless âŚ
I have around 40 individuals as my clients who trade in FNO. 35 are having losses. So no point considering them. For the rest of them I donât give advice to show 6 percent. We maintain books and declare right profits. So the question of receiving notice for Fno traders doesnât even arise.
I am speaking from experience of filing returns for other traders. But then since I always match the cash flows, I was always able to defend my clients and got away.
For sure. Otherwise I wouldnât even take the trouble of replying here.
63 pan is possible. Give me 6 members, I will get it done for you in 15 days. Stamp duty 500. Pan charges 107. All same address.
I had one client who formed 12 firms in one day with same address. And I even submitted pan application on the same day. I donât know his purpose. He never came back.
MCA wonât come into play because itâs outside its jurisdiction. Sebi wonât bother too I feel. I am not indulged in any unlawful practices in securities market. My constitution of firms is not their concern. Broker wonât bother either. Come on. I can do it with 63 different brokers too.
If I can save so much tax I will appoint one person on salary basis to only do this.
Other businesses. Usually profit margins are around 10 percent and most of them show 6 to 8 percent.
One last thing. Just because Fno traders have not received notice that doesnât mean it is right.
Even if Fno traders donât file returns, 99 percent of the times they will not receive any notice. It doesnât get reflected in AIS. Only purchase and sale of shares do.
Forget about Fno traders. Even for others if they donât file returns most of time no notice is received. That in itself doesnât mean that we donât have to file our returns.
If by any chance you get a notice, just guess who is going to defend you?
For concealment of income penalty can go up to 300 percent. Wanna take a chance?
Yes well ⌠the key question here is if you use presumptive taxation is it concealment of income or is a legit provision that is not getting used due to fear of unknown.
I understand the caution - but still dont see the point why its illegal. Are you saying that its dependent on the margin in the business ? I dont think IT Act cares about the margins that produce profits.
No. The problem is with the calculation of turnover. For other businesses itâs very clear. Everybody knows what turnover is. How do you think they decided on 6 and 8 percent. They must have studied the data right.
But the problem with Fno is even Income Tax Act is silent on the calculation. Itâs not mentioned anywhere in the Act.
We further need to understand the rationale why 44AD was introduced. To make it easy for small retailers who find it difficult to maintain books of accounts. For Fno traders, the books are maintained by the broker. So in ITR, you are saying books not maintained and showing profits at 6 percent? Isnât it wrong declaration?
There are many issues here, answers for which even I do not know. To add to the confusion, ITD has remained silent. They wonât even do that because 90 percent of them lose money and unlike my extreme examples, I donât think more than 1 percent make more than 50 percent of turnover.
Everybody is interpreting the way in their interest.
My point is not that. Even if your receive notice to explain your investment, you may defend yourself taking shelter under 44AD. Itâs not at all difficult to convince the AO. We can just confuse them with confidence. But do you want this hassle when broker has done all the job for you and has maintained all the books required?
I think the issue is that there are no examples of traders who make profits and want to use 44AD.
I guess most people use their PNL in FO for loss offsetting. Hence 44AD is at best an untested implementation of the law in the case of FO traders.
I still dont see this as illegal as individuals are not covered in GAAR. I guess there is no one who has made enough money in trading FO to consider using this.
I have intraday profit of 958/- and options loss of -1.65L with turnover of 12,53,000/-.I am using zerodha quicko and downloaded computation sheet.I want to carry forward the loss last time i did byt my CA says 44AD 6% tax irrespective of loss or profit.Please help me here.
You can carry forward the loss and set off against future incomes if you opt for the regular scheme of taxation.
In case youâve opted for the presumptive scheme u/s 44AD in any of the previous 5 years, you will need to get an audit done of your books of accounts.
Is it mandatory to opt for LTA in your compensation structure to claim LTA. I travelled to Goa with my family last year. I have all the valid proofs for flight expenses. However, I hadnât opted for LTA under my flexible pay structure. So essentially my company hadnt paid me anything under LTA allowance.
In this case, can I still claim my LTA deductions while filing my ITR. Please suggest.
