Now pay just 0.090% income tax on turnover of Rs.1 Crore with this simple tax planning
by Paras Mehra 10K
How do you feel when we say that you just need to pay 0.090% income tax on the total turnover of Rs.1 crore and you even don’t have to pay advance tax and even there is no need to maintain the books of accounts as well?You must be delighted. Right? Every person who is doing business in India knows that it isn’t easy to manage all such things especially taxes. Further, even if you pay the right taxes (as per your calculation), then also there is always a risk of notice, penalty, and fines.
Hence, we have brought to you a simple tax planning which will help you to resolve your taxation problem permanently. Let us discuss the calculation and the tax planning in a detailed manner.
The Tax planning with Section 44AD
The section 44AD is one of the simplest sections to pay tax, yet very few people know about it. This section works on presumption and not on actual calculation and hence, it is very different from all the other methods of taxation.
As per this section, any person who declares the income as per the section 44AD and received total turnover through banking transactions only, then 6% of the total turnover is assumed as the total income of the assessee.
Further, if you are not 100% digital and do cash transactions as well, then 8% of the total turnover will be assumed as income instead of 6%.
Let suppose, Mr. A runs a shop in Sadar bazaar Delhi with a turnover of Rs.1 Crore. He opted for section 44AD and hence, let us does the complete calculation of his final tax liability.
|
Particulars |
Final Amount |
Final Amount |
|
|
100% banking transaction |
Not having 100% banking transaction |
|
Total turnover in FY 2017-18 |
1,00,00,000/- |
1,00,00,000/- |
|
Total income assumed as per Section 44AD |
6% |
8% |
|
Total Income of the assessee |
600,000/- |
800,000/- |
|
Less: Deductions under chapter VI-A
|
|
|
|
Total Income After deduction |
4,25,000 |
6,25,000 |
|
Calculation of income tax as per applicable slabs |
8,750 |
37,500 |
|
Add: Education Cess (3% of the Income Tax act) |
262 |
1,125 |
|
Final tax Liability to be paid |
9,013 |
38,625 |
|
Percentage of tax to turnover |
0.090% |
0.386% |
Hence, you can see that if you do the normal tax planning and avail some of the available deductions, then you can pay a tax of only Rs.9,013/- i.e. 0.090% of total turnover of Rs.1 Crore.
Let us understand some of the important concepts about the section 44AD like its applicability, benefits and more.
Applicability of section 44AD
Section 44AD is applicable only to business (except some business) and not to any profession. Hence, if you are a doctor or a CA, then this section is not applicable to you. This section 44AD is not applicable to:
- Profession
- Commission or brokerage business
- Agency business
Further, this section is applicable if you are doing business as:
- Individual/sole proprietor
- Hindu Undivided Family (HUF)
- Partnership firm
Hence, if you are doing business after company registration, Limited liability partnership (LLP) or any other form, then section 44AD is not applicable and hence, you cannot claim benefit as described above.
Turnover limit for section 44AD
The applicability of section 44AD is not an infinite and hence eligible person (as explained above) is having turnover maximum up to Rs.2 crore can claim the benefit of section 44AD.
No maintenance of Books of accounts
If you have availed the benefit of section 44AD, then maintenance of books of accounts is not mandatory. This is an important benefit because it will save a lot of compliance cost.
No Advance tax liability
Advance tax is applicable only when your tax liability is more than Rs.10,000/-. However, in our case the total tax liability is Rs.9,013/- which is less than Rs.10,000/- and hence, advance tax is not applicable.
Read: Presumptive taxation calculator – Income Tax
No Income tax audit
Since, you are not required to get maintain the books of accounts and hence, there is no question of income tax audit. In simple words, the audit is done on the books maintained and hence, if there are no books, then there is no question about the audit.
Lesser chances of tax scrutiny
There are very few chances that your case will fall under tax scanner, this is because, under section 44AD, the tax is calculated based on the calculation provided by the government itself and hence, the income tax officer cannot question it even if your actual profit is more than the deemed income under section 44 AD.
Can I claim income less than 6% or 8%, as the case maybe?
Yes, it is even possible to claim the total income less than 6% or 8% as the case may be. However, in that case, one has to maintain the books of accounts and get it certified by a Chartered Accountant (CA).
How to claim the benefit of Section 44AD?
To claim any benefit under the law, one has to file income tax return. You need to prepare and file the ITR 4S, in order to claim the benefit of lower taxation. You can also take the help of a Chartered Accountant or any other expert.
Conclusion
The above analysis about the section 44AD will resolve your problem and in case you still have doubt, then the same can be sent to us at info@hubco.in.