Me, my father and my mother, we all three are professionals and provide consultancy in various laws.
My fathers HUF bank account has been created since last 1 year. There were no transactions untill now. but March 2013 my father has deposited almost Rs.2,00,000/- in cash in installments of 45,000/-, 48,000/- and so on.
Now my question is that I want to show Rs. 2,00,000/- as turnover/gross receipts of HUF and 10% of Rs.2,00,000/- i.e Rs.20,000/- as business income of HUF and file ITR-4S.
Since there are no provisions to maintain any books of accounts, I feel that I can go ahead with this. But I seek an expert opinion from your side.
Shall I go ahead with this transaction and line of action ?
I would Like to know that all 3 of us i.e me, my father and my mother are professionals in personal capacity. So, HUF of my father can show business income on paper without having actual business in order to take taxation benefit of section 44AD. By this I can save some tax.
28 July 2024
Under the Income Tax Act, 1961, Section 44AD provides for a presumptive taxation scheme for small businesses, allowing certain taxpayers to declare 8% (or 6% if digital receipts) of their turnover as income and pay tax on that amount. However, there are important considerations and restrictions to keep in mind when applying Section 44AD to an HUF or any entity.
### **1. Applicability of Section 44AD**
**Eligibility Criteria:** - **Nature of Business:** Section 44AD applies to businesses, but it does not apply to professions like consultancy or legal services. It is primarily for businesses engaged in trading, manufacturing, or similar activities. - **Turnover Limit:** To qualify under Section 44AD, the turnover of the business should not exceed ₹2 crore (₹2 million) in a financial year.
**Professionals and Presumptive Taxation:** - **Section 44ADA:** For professionals, including those providing consultancy, Section 44ADA is applicable. Under Section 44ADA, professionals can declare 50% of their gross receipts as income and are not required to maintain detailed books of accounts. This is different from Section 44AD, which is for businesses.
### **2. Specifics of Your Situation**
**Deposits and Turnover:** - **Cash Deposits:** Depositing cash into the HUF's bank account and showing it as turnover under Section 44AD would be inappropriate if no actual business activity or services were rendered. The Income Tax Department may view this as an attempt to manipulate the system, leading to scrutiny or legal issues.
**HUF as a Taxpayer:** - **Business Activity Requirement:** The HUF must have actual business activities to use Section 44AD. Simply depositing cash and declaring it as turnover without real business activities is not compliant with tax regulations.
**Tax Benefits and Compliance:** - **Misuse Risks:** Claiming tax benefits under Section 44AD without actual business activities can be risky. It might lead to questions from the tax authorities regarding the source of funds and legitimacy of the claimed income. - **Legal Implications:** The tax authorities require genuine business operations for claiming presumptive taxation benefits. Misrepresentation can lead to penalties or legal issues.
### **3. Recommendations**
**For HUF and Section 44AD:** - **Actual Business Required:** Ensure that the HUF is engaged in actual business activities, and maintain proper records of such activities. - **Consult Section 44ADA for Professionals:** For professional services like consultancy, consider Section 44ADA, which is designed for professionals and allows for presumptive taxation with simpler compliance.
**For Filing Returns:** - **Proper Documentation:** If you are engaged in a genuine business activity, maintain accurate records and ensure compliance with applicable sections of the Income Tax Act. - **Seek Professional Advice:** Consult a tax advisor or chartered accountant to ensure proper compliance with tax laws and to determine the most appropriate tax treatment for your situation.
### **Summary**
- **Section 44AD:** Not applicable for professions like consultancy. It is meant for businesses, and the HUF must have actual business activities to use this section. - **Section 44ADA:** For professionals like you, your father, and your mother, Section 44ADA is more appropriate. It allows professionals to declare 50% of gross receipts as income without maintaining detailed books of accounts. - **Cash Deposits and Turnover:** Depositing cash and showing it as turnover without actual business activities is not compliant and can lead to legal issues. - **Professional Advice:** Consult with a tax professional to determine the correct approach and ensure compliance with tax regulations.
For accurate tax filing and compliance, it’s crucial to follow legal provisions and maintain genuine business records.
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