Gross Profit related

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A business owner is concerned about a drop in their Gross Profit (GP) from 8.37% to 7.10% in the current financial year, despite an increase in purchases and sales. They are seeking advice on potential issues with the Income Tax or GST departments, including surcharges or penalties. The advice suggests checking for tax audit liability under Section 44AB, as profits below 8% can sometimes trigger this. However, if there's a logical explanation for the lower profit and all sales, purchases, and expenses are accurately recorded, the GP percentage should be acceptable.

Vaneet Monga

Vaneet Monga (Querist)

31 March 2021 Dear Sir

Please suggest regarding GP. In 2018-2019 My Gross profit 8.37% In 2019-2020 its 8.37% But in current Financial year 2020-21 its 7.10% even my purchase and sale increase from last year. Can i face any issue Surcharge or plenty from Income tax or GST department.
Please guide

CA Gunjan Agarwal

CA Gunjan Agarwal (Expert)

31 March 2021 Check if you are liable for tax audit under sec 44ab .As in some cases profit below 8% require tax audit.
In other case if you have logical reason for lower profit then it will be no issue

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CA Puja Sharma

CA Puja Sharma (Expert)

31 March 2021 IF your sale and purchase including expenses have been correct recorded then any percentage of GP will be acceptable as genuine.

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