44AD

Page no : 2

Vishal ( CA student) (394 Points)
Replied 08 March 2017

Tax is to be levied on 8 % of gross turnover..

But if something is disallowed (ie., in this case, 26000 payment in cash shall be disallowed). Then tax shall be on such amount also..

In total, tax shall be levied on (8% of GST + disallowed amount).

I have not gone through the return of income section regarding computation of income at the time of filing.. But there shall be a column regarding such disallowance..

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CA Syed Parvez Ali (None) (458 Points)
Replied 09 March 2017

@ Vishal : Let me correct you here.

Section 44AD overrules Section 28 to 43 C, therefore it also overrules Section 40A(3) under which cash disallowance is made,

Therefore, reinstating your words : ''In total, tax shall be levied on (8% of GST + ~~disallowed amount~~). ''.

There cannot be a second opinion about that,

CA Syed Parvez Ali (None) (458 Points)
Replied 09 March 2017

@ Ashish

Correction : the crux of above is that - 8%of turnover will be taxed+ ~~separate tax on part of cash payment exceeds 20000.~~.. There you go.

And, answer to the second part of your question, yes you can consider it as a loophole although it is trivial, since you've to be an eligible assessee (which does not include a company) along with eligible business.

Uday Aggrawal (Student ) (72 Points)
Replied 09 March 2017

40A(3) doesn't apply to an assessee opting for 44AD.. so the 20000 limit is not applicable in that case

it's logical too because the assessee won't be preparing the books of accounts in the first place, the question of disallowance does not arise..

Sanjay S (Chartered Accountant) (1375 Points)
Replied 09 March 2017

My apologies for having given an inaccurate interpretation earlier. I agree with the above.

In fact, excerpts from the 44AD (Theory) file hosted on incometaxindia.gov.in is as below:

"Income computed as per the provisions of section 44AD (i.e., @ 8% of turnover or gross receipts of the eligible business, for the previous year) will be net income of the business covered under this scheme. From income computed at the aforesaid rate, no disallowance can be made under sections 40, 40A and 43B."

Conclusion:

Sub section (1) of sec. 44AD begins with a non-obstante clause and over-rides section 28 to 43C. Accordingly provisions of machinery provisions falling in –between these sections, shall not be applicable in case assessee opts for presumptive taxation u/s 44AD.