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Showing presumptive tax @8% when the actual profit is higher

Kartik (Self Employed) (75 Points)

19 November 2016

Is showing presumptive tax @ 8% allowed or legal when the actual profit is much higher than 8% under section 44AD?

Given a scenario where profit of a small business owner is much more than 8%. He decides to file tax under section 44ad showing just 8% income. Will rest of the income sitting in bank account be penalized as tax evasion? Is declaring higher % profit voluntary or mandatory?

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Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (174033 Points)
Replied 20 November 2016

"Will rest of the income sitting in bank account be penalized as tax evasion?"

Always questionable.

"Is declaring higher % profit voluntary or mandatory?" Voluntary

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Kartik (Self Employed) (75 Points)
Replied 20 November 2016

Originally posted by : Dhirajlal Rambhia

"Will rest of the income sitting in bank account be penalized as tax evasion?"

Always questionable.

"Is declaring higher % profit voluntary or mandatory?" Voluntary

"Questionable" : would really appreciate if you could elaborate more on this.

i mean if AO questions about the excess % income, then you could be penalized for this?

Sorry to ask this, but there is really not much information among CAs regarding this section. Everyone has their own interpretation regarding it. Even different online articles suggest different things.

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (174033 Points)
Replied 20 November 2016

Can you elaborate on following:

VERIFICATION

I, DHIRAJLALxxxxx RAMBHIA, son/ daughter ofxxxxx, holding permanent account number AAxPRxxxx, solemnly declare that to the best of my knowledge and belief, the information given in the return and schedules thereto is correct and complete and that the amount of total income and other particulars shown therein are truly stated and are in accordance with the provisions of the Income-tax Act, 1961, in respect of income chargeable to Income-tax for the previous year relevant to the Assessment Year 2016-17.

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Kartik (Self Employed) (75 Points)
Replied 20 November 2016

Originally posted by : Dhirajlal Rambhia

Can you elaborate on following:

VERIFICATION

I, DHIRAJLALxxxxx RAMBHIA, son/ daughter ofxxxxx, holding permanent account number AAxPRxxxx, solemnly declare that to the best of my knowledge and belief, the information given in the return and schedules thereto is correct and complete and that the amount of total income and other particulars shown therein are truly stated and are in accordance with the provisions of the Income-tax Act, 1961, in respect of income chargeable to Income-tax for the previous year relevant to the Assessment Year 2016-17.

So declaring true % profit is mandatory and not just 8% . It isn't voluntary then.

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (174033 Points)
Replied 20 November 2016

"So declaring true % profit is mandatory and not just 8% . It isn't voluntary then. "

Does it really imply that way???

Very well discussed by experts : /experts/presumptive-taxation-u-s-44ad-2361474.asp

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Member (Management) (325 Points)
Replied 20 November 2016

Look at it this way: 8% is the minimum mandated. If you want to go lower than that, then you should get your accounts audited. If your actual profits are going to be higher, then that higher profit would probably be taken as your income. Having a higher profit as per your own accounts and then declaring only 8% under 44AD may be risky.

Nikhil Sharma (Government Service) (539 Points)
Replied 20 November 2016

Declaring higher income is at the option of the assesse. Its not a mandatory requirement. You can check it from point number 8 in tutorial provided in this regard by income tax department. Check Here : https://www.incometaxindia.gov.in/tutorials/section-44ad-theory.pdf

Kartik (Self Employed) (75 Points)
Replied 20 November 2016

Originally posted by : Nikhil Sharma
	Declaring higher income is at the option of the assesse. Its not a mandatory requirement. You can check it from point number 8 in tutorial provided in this regard by income tax department. Check Here : https://www.incometaxindia.gov.in/tutorials/section-44ad-theory.pdf

Yea I understand it is not mandatory. But the real concern is if someone doesn't declare higher income, he is at risk and can always be penalized for not decalring true income. That's what other experts have implied with their replies.

Even accroding to the illustration in the tutorial it says "has to" :

As per the provisions of section 44AD, if the actual income from the business covered under

section 44AD is higher than the income prescribed under the presumptive scheme, then the

assessee has to declare such higher income from aforesaid business