Section 44AD says that you can show 8% of your turnover as profits.
Lets say my actual profits are 1Cr and turnover is also 1Cr.
Would I be able to show 8L as profit here?
If no, what is the exact clause and whats the point of presumptive taxation then? (If you have to pay at least as much as actual profits at least)
You are rockstar if you can achieve 1Cr profit on 1Cr turnover
Jokes apart, Sec 44AD was introduced for small business owners with turnover less than 2 Cr.
For most small business margins are really low and hardly more than low double digits.
However maintaining accurate book of accounts and doing calculations of actual profit is more tedious for them and adds cost.
So to ease compliance burden on them, IT department is like rather than going through all these hoops of calculation, just assume 8% as you net profit margin and pay tax on that.
So point of presumptive taxation is to reduce compliance burden on small business owner and free up time of IT department to focus on bigger fishes
But yes if you can generate 100% profit margin, you are a rockstar. You can show 8L as presumptive profit and just pay tax on that.
Lets take a real case of a friend. He has turnover of 29.18 lakh and gross profit of 9.6 lakh. Can he apply presumptive taxation?
Thanks
Ratan
Thanks for the reply!
But I can’t help but think about how can this be possible.
Because if a person is trading (intraday) in just one equity, say RELIANCE. And the person has 1Cr year end profit. Using the scrip-wise turnover method, his turnover would be 1Cr only. So this way he just has to pay the tax on 8L. That is quite unbelievable tbh.
Even if you scale number of stocks to say 5-6 (pretty realistic), with profits: 20L, -5L, 50L, 30L, 5L.
The turnover is 1.1Cr with profit 1Cr. Which is not that far off from reality for some expert traders.