All the expenses are deemed to be claimed if you opt for presumptive taxation scheme. No further expenses can be claimed.
Hi @teenscm,
You cannot claim expenses when you opt for the presumptive taxation scheme. However, you can continue to claim Chapter VIA deductions.
@Quicko
Since we don’t have to maintain books if we file under 44 AD, how will we know if actual profits are greater than 6% of turnover or not?
Isn’t the whole point of Section 44 AD, to provide relief for small taxpayers from maintaining books of accounts by just presuming profits are 6% of turnover? If we need to report actual profits, then it would be necessary to maintain books of accounts and track all expenses like salaries paid, office rent, electricity, fuel, subscription to services and other overheads.
What am I missing?
Hi @Roy,
The idea behind the presumptive taxation scheme is that taxpayers can focus more time on running their business, rather than maintaining books of accounts and bookkeeping.
When opting for the presumptive taxation scheme, taxpayers do not need to maintain books of accounts like P&L or balance sheet and let go of the requirement to get audited.
The Income Tax Act states, that under a presumptive taxation scheme, taxpayers need to report their income at the minimum of the predefined rate or the actual profit - whichever is higher.
When opting for the presumptive taxation scheme, you cannot claim business expenses like salaries paid, rent, or other overheads.
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Then if you need to report actual profits how are expenses offset and what is the whole point of presumtive taxation, Quicko has no idea what they are talking about. Please refer to your senior and get back.
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Under presumptive taxation, your tax liability will be determined on the basis of percentage of your profits (8% for cash and 6% for non-cash). Since FnO would be in the non-cash category, your net profit would be calculated at 6% of your turnover. That net profit will become your taxable income and will be taxed accordingly.
Eg - You have a turnover of INR 1crore. Your net profit as per presumptive taxation would be 6% * 1 cr = INR 6 lakhs. This 6 lakhs will be your taxable income and taxed accordingly.
But what if your actual net profit (taxable income) is only INR 4 lakh (or any amount lower than INR 6 lakhs)? In that case, you would not be able to claim a profit of less than 6%. So you would be better off maintaining your books of accounts and not opting for presumptive taxation to claim lower profit and hence lower tax liability.
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What if my profit is more than 6% of turnover like 20%? Still i will be taxed at 6%?
Yes, you will still be taxed at 6%. But do remember that you will not be allowed to deduct any expenses and that your turnover should be below the permissible limit
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cool, just wanted to know did you file presumptive tax for fno? or are you a CA. I have let say FNO turnover of 1 crore and profit of 45 lakh, with Presumptive tax i would be still paying tax on 6 lakhs. Wouldn’t it raise any flag or i am safe? Just wanted to understand any edge cases here
I also had same thing in mind, if i need to mention higher profit than 6% without expenses whts the point of presumptive tax than?
So we can use presumptive taxation and save some right? I am confused now.
For the purpose of levy of income tax 6% or more may be considered as income, but actually this is not the actual income of the assessee. If the actual income of the assessee is higher, then the actual income is to shown in the return of income.
The provisions of presumptive taxation are enacted to facilitate computation of total income and
filing of return of income. It does not give a license to the assessee to declare lower income despite
the assessee having a higher income. The assessee is legally bound to return higher income if the same
is higher than the benchmark given.
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In case of a person adopting the provisions of section 44AD, income will not be
computed in normal manner as discussed earlier (i.e., Turnover less Expenses) but will be
computed @ 6% or 8%, as the case may be, of the turnover or gross receipt.
However, a person may voluntarily disclose his business income at more than 8% or 6%, as the
case may be, of turnover or gross receipt.
Straight from Income Tax Department document. The word presumptive means that income will be presumed as a percentage of total turnover. You can voluntarily declare a higher income, but it is not necessary.
Nowhere in the act is this mentioned. A person opting for presumptive taxation is not required to maintain books and accounts and hence has no idea about his actual profit. Declaring income above 6% is voluntary.
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Why did you delete your post ?
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The wordings of the post were not accurate. Did some research and posted a better reply
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Hmm, I am not a CA, the way I understand is you have to mention your revenue and expenses. But Claimed profits can be what you claim(not actual). And claimed can be more than deemed(or less or equal to) - and tax is paid on higher of claimed and deemed.
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In presumptive taxation you are only required to declare your turnover and the percentage of turnover you would like to declare as income. 6%/8% is the minimum that has to be declared and you have the choice to declare a higher percentage of profit too. As no expenses are allowed in presumptive scheme, you don’t have to declare any expenses.
Well. Interpretation of law can be different from different people.
If you ask me.
Can I show profits at 6 percent and file my returns?
Yes.
Will the return be process successfully?
Most of the time.
But then there are a lot of things to be considered.
Income Tax is self assessment tax. We have to assess our income and declare it.
If AO is satisfied, then it’s accepted.
If he isn’t then he will ask for more information by issuing a SCN
I won’t get into the sections in detail but will just try to put in simple words.
When we say we have 6 percent profit we are indirectly saying we have 94 percent expenses. If that’s the case then your assets during the year shouldn’t exceed more than the income you have declared. Basically your cash flows should match.
Let’s say. I sell OTM options and all of them expire worthless. In this case my turnover is 1 crore. And profit is also 1 crore. According to 6 percent I show only 6lalks as income. And then may investment of 90lalks during the year. How is this justified. The AO has to power to deem it as income.
Plus, if you are talking about business income out of FNO you are clearly maintaining books of accounts. The brokers themselves maintain for you. How can you say you don’t know your profits.
You are giving a declaration that you have declared income to the best of your knowledge. But are you ??
Since it’s a debatable topic I will leave it out for you guys to figure it out.
Just to cite a case law. It’s a mere copy paste. You can skip to conclusion directly.
Ahmedabad bench of ITAT in the case of Shivani Builders Vs. ITO [2007] 295 ITR (AT) 281. The relevant paragraphs of the order reproduced below brings out the import of the presumptive sections which we are discussing: It is, thus, clear that the law envisages all the three situations by laying down appropriate procedure for all of them, i.e., the assessee disclosing a higher, lower, or an amount equal to the presumptive income (reckoned at the rate of 8 per cent of the turnover). – In the instant case, the assessee contended to have declared its income at the presumptive rate, being covered by the provisions of section 44AD, of which, clearly, there was no doubt, it being engaged in the civil construction of residential flats. The provision of section 44AA i.e., with regard to mandatory maintenance of books of account, would apply to an assessee engaged in such business, only, if the assessee chooses to be taxed at lower than the presumptive rate of 8 per cent, which is clearly in the nature of a, and the only, concession accorded by the statute to the relevant class of assessees, to which assertion of the assessee, there could be no doubt, it being statutorily recognized/ enacted. However, where the assessee, despite the said concession, chooses to maintain the books of account, preferring to rely thereon for various other purposes, both apart from and under the Act, it cannot ignore the book results and claim to be entitled to a lower presumptive rate of income than that revealed by such books. The law does not accord a privileged status to the assessee engaged in this line of business but only, considering the vagaries that attend thereto, draws a higher bar for the purpose of maintenance of books, i.e., than that normally obtains under section 44AA. As such, it cannot be said that though the assessee, admittedly, earns more, he would still be liable to be assessed to income-tax at a lower income by virtue of the said concession. Section 44AD would not operate to curtail the scope of income as defined under section 2(24), read with section 5, so that where the assessee admittedly earns a higher income, the character of which as income is undoubted, it would be liable to tax on that basis, that is, on the basis of real income, even as held by the Commissioner (Appeals). The assessee’s plea of the said interpretation as amounting to be penalizing it for the maintenance of its books, was wholly misconceived; the act of paying tax on the basis of income earned cannot, by any stretch of imagination, be considered as amounting to being penalized; the law is not creating a privileged class out of such assessees, but thereby only is providing a window of concession for a limited purpose.
Conclusion
From above discussion, following points can be concluded
- An assessee filing the return of income is under an obligation to offer its correct and true income in accordance with the provisions of the Act.
- The presumptive scheme of taxation allows taxpayers to offer income higher than the prescribed rate. In short, it is the minimum rate u/s 44AD which has to be considered and higher income option is open for the taxpayers which have to be used if taxpayers have higher income. 3. The powers of the AO are very wide & exhaustive. AO can assess correct income on the basis of investment if they have sufficient documentary evidence which is very much possible during survey, search & assessment proceeding. AO can bring to tax the higher income in such cases
- Though the presumptive scheme of taxation is introduced with an aim to relieve the taxpayers form the requirements of maintaining the books of accounts, however, it doesn’t not relieve the taxpayers from justifying its investment sources. In short, it may not be taken as a permission to show lower income even if taxpayers are earning higher income.
- The concept of making disclosure in the ITR forms with respect to few Balance Sheet data in income tax returns seems to have been introduced with this concept only.
- Not offering true or correct income may even result in the application of section 69, 69A or section 69C of the Act if the investment or the expenditure is in excess of the returned income.
- Section 44AD does not give a license to the assessee to declare lower income despite the assessee having a higher income
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My CA recommended me to use normal Tax Slab for Intraday & FnO Profit.
He said, all your expenses are online. Even, If you sum all the expenses including personal, your profit will be more. So we can’t use presumptive tax blah blah. Last year, i thought ok. But paying tax this year really hurts.
Is there any official way to get a confirmed answer? I don’t want to get notice after XX years, and pay tax with interest.