MY FINANCIAL PLAN - A STEP TOWARDS FINANCIAL FREEDOM.

Hey guys

I hope you all are doing great in your career and life. Many times people wish to have a secure future and are willing to save and invest for it, but lacks direction.

Where to start, what to do, how to invest are the questions which remains unanswered and hence they fail to begin early.

By this article I would like to highlight my financial plan, so that people might get an idea of where to start and set priorities to have a financial plan.

This financial plan would be most relevant for persons fulfilling following criteria:-

1. Age – 28 Years.

2. Income – Rs.1.25 lac per month after tax.

3. Not sole earning member in family.

4. Have exposure in mutual funds and Equity.

So let's get started

I have divided the financial plan in 3 categories which will act as a checklist for persons who have not yet started their financial planning.

1. Health insurance.

2. Life insurance.

3. Investments.

 

1. Health insurance

70% of Indians are just 1 medical bill away from poverty. This statement has a serious gravity only if one understands it well.

Needless to say, health insurance is the need of the hour, and since we have seen the deadly covid -19 pandemic just 2 years before, everyone must have encountered with at least one situation in their close circle if not more, where the person in need borrows money for paying the bills of hospital. (Mortgage of gold, house is quiet common in these situations)

So why should one indulge into such situations, if he can pay a small premium per anum to get insured against this fearful situation.

I had bought my health insurance policy from Care Health Insurance in March 2019 for 3 years at once for Rs 12,234/-.

Later in March 2022 got it renewed again for 3 years till March 2025 by paying premium worth Rs 20,943/-.

Paying premium for 3 years at once allowed me to save 10% extra as companies offers these discounts for bulk payment. An added advantage is that I am spared from paying increased premiums for next two years as companies has increased premiums by 10-15% in 2022.

What does my policy covers?

Sum insured - 5 lacs

No claim bonus - 150%

Room rent - no capping single private ac room

Free annual health checkup (costing approx 2000)

Health insurance companies have a waiting period of 2 to 4 years for preexisting diseases(PED).

Meaning if a person is already taking medication of heart related diseases, his claim for heart attack  will not be settled by company if it's in waiting period.

One can reduce the waiting period by paying some extra premium. So what one should do to get hassle free claims?

Buy health insurance today AND disclose all existing diseases, pay some extra premium but have a peaceful sleep at night.

What is no claim bonus?

Since I have not claimed any claims from the company in these years, company offers me enhanced sum insured of 12,50,000(150% of 5,00,000) instead of 5,00,000 for future.

So I am insured to the tune of 12,50,000 but paid premium for 5,00,000 only. This is an added advantage for being loyal to the company.

Medical inflation is approx 15% p.a in India and is expected to grow at this rate for next 5 years.

By buying this health insurance policy, me and my family is financially secured from any unforeseen emergencies of hefty medical bills.

2. Life insurance

Death and taxes are the only things certain in life.

Why should one buy life insurance?

When you are alive, your family is dependent on you for financial needs, but in case of death especially at an early age, family is shattered not only emotionally but financially as well.

Having a life insurance policy helps your family to cope up with this financial crisis and maintain same lifestyle expenses while you were alive even after your death upto a certain years till the age when children completes education and are mature enough to earn by themselves.

Having a term plan can significantly help in dealing effectively with such situations.

If a family's yearly lifestyle expenses is 6,00,000, then a term plan of 1 crore can serve the family for next 15 years considering inflation and if properly invested can serve for more than 15 years also.

I have purchased a term plan worth Rs 1 crore from Bajaj Allianz Life Insurance company. The details of the plan are as follows:-

Outflow – Rs 23,156.32/- p.a

Tenure  –  20 years (Premium paying term)

Total Outflow – Rs 4,63,125/- in 20 years

Insured upto age 85 years.

(If I die before 85 years, my family will get Rs 1 crore)

Policy term – 58 years (85 -27)

27 was my age at the time of buying the term plan.

One may choose a shorter policy term of 48 years, where in he will be insured till the age of 75 years.(premium will be slightly less).

 

3. Investments

 I have started investing 20000 per month in ULIP, which can be termed as tax free mutual funds along with insurance benefits.My goal is to make my 1st 1 crore Rs and investing Rs 20000 per month for next 15 years would help me acheive that goal.

  

SUMMARY :-

 1. Have a adequate Health insurance cover to cater for medical emergencies. I have bought my health insurance policy  for Rs 5 lacs 4 years back and now its worth 12,50,000 thanks to No claim bonus facility.

2.  Have adequate Life insurance cover as a backup for your family’s financial needs, when you are gone. I have bought a term plan at age 27 for Rs  1 crore  by paying annual premium of Rs 23156 fixed for next 20 years and insured till the age of 85.

3. Make a goal and alight your investment to acheive that goal. To acheive long term wealth creation one should invest in equity linked products. Start investing early if possible from today. Start with 20k per month, if that's too much go with 15k or even 10k. But start investing you will be amazed to see the benefits of compounding in the long run.

As and when the income increases, one should again reassess the financial needs and plan again for further investing in asset class which best suits you at that particular time.   

Further Consulting a financial advisor is highly recommended.

If you need any help regarding financial Planning or have any suggestions  feel free to contact us at 9028912025 or email @ caakshatmodi@gmail.com.

 

 #retirement#retirementplanning#investment

#financialplanning#early retirement

 

Disclaimer :- This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or financial advice. You should consult your own tax, legal and financial advisors before engaging in any transaction.

 

FINANCIAL FREEDOM OR EARLY RETIREMENT - WHAT, HOW AND WHEN?

 Hello everyone,

Gone are the days when people use to retire at 60, with a limited corpus. This young generation wants financial freedom at young age. The life of our earlier generations was full of responsibilities. Sacrificing self-desires for betterment of family. 

We can broadly classify the lifestyle of Previous 3 generations after independence as follows-

1947-1977

Majority people of this generation suffered extreme poverty. Their only desires were the basic necessities Roti-Kapda-Makan. Some of the people were privileged enough to get higher education and a decent paying job.

But majority people were left  with no proper working conditions, Sethji employers, minimum salaries, no holidays, exploitation, low self-esteem and what not..

This generation learned the lesson of Hard work and Value of money the hard way.

Disagreeing with employer or saying no for a particular work was never thought of by employees back then.(family responsibilities)

 

1978-1997

People of this generation were provided with basic mandatory education. Globalization and liberalization opened gates for both business and education to a great extent.

With sheer dedication and hard work, people excelled in their life. Big business, industrialization, IT reforms etc. left no stone unturned for growth story of India. People now have the basic necessities but didn't have the luxuries.Again family responsibilities, building a house, providing good education for children, savings for emergencies were the top priorities.Maintaining good relationship with employer for career growth was mandatory, switching jobs was not easy, disregarding employer still not very common.(job security, career stability, family responsibilities)

Planning for retirement for self desires was still not the cup of tea for most of the people.

 

1998-2022

Majority people of this generation has the basic necessity and a privilege of sound education. Access to low cost internet facility, financial education, paved the way for a civilized society. Startup culture, desire to earn more money, fame, luxury is the latest trend. People nowadays want a healthy work environment, work life balance, handsome salaries, growth and mental peace above all.Bullshit of employers are no longer tolerated, job switches are comparatively easy.

Up skilling with latest technologies, good communication skills and networking are the new age necessities.

To cut the long story short, people nowadays are smart enough to earn for the necessities and work for luxuries.(financially sound and independent)

This generation works and save for self desires, vacations along with family responsibilities. This young generations’ plan of retirement is also quite different.

Let’s understand this in following manner:-

Mr Saurabh's age is 30 and is earning 1 lac a month.

He has two options to plan his retirement.

1. Save 10000 per month and invest in equity market based products for next 30 years and have a corpus of Rs 3 crore at the age of 60.(assuming 12% return per anum)

Or

2.Save 20000 per month and invest in equity market based products for next 15 years and have a corpus of Rs 1 crore at the age of 45.(assuming 12% return per anum)

Let me know in the comments which option will you choose?

Both the options are good, and one can choose according to his comfort. But majority of the younger generation is inclined towards option 2.

Having a corpus of 1 crore at age 45 means you can withdraw 1 lac per month and keep the corpus intact and growing.

If you can sustain on 50,000 per month today, you can meet your basic livelihood with 1 lac a month after 15 years, considering inflation rate of 5% p.a.

 

Here Focus is not to retire at age 45 and sit back at home and relax, but to have financial freedom, ownership of time, pursuing your hobby, making your hobby your active source of  income (latest trend), living a meaningful and content life, spending quality time with family and list is never ending.

Basically “Do what makes you happy”

So what's the point I am trying to make here.

By the passage of time salaries increment, career growth and switches are bound to happen. One should not hesitate to start a sip of 15000 to 20000 if you are earning 1 lac per month.

You need to start investing early and also a handsome amount(15-20% of your salary) in order to retire early and have a financial freedom.

A proper financial plan and goal based investing is the key for happy retirement and mental peace.

One should have a provision of emergency funds of at least a 6 months’ income. Provision for vacation, education is always recommended.

Summarizing the topic What, When and How of financial freedom and early retirement:-

 

What-Relying upon passive income after a certain age for basic necessities, rather than actively working for the same is the essence of any effective financial retirement plan.

 

When- Investing from an early age of 25- 30 years is the best time to start investing for retirement.

If you missed the bus, start today.

The best day to start your retirement planning is first day of your career, the next best day is "TODAY".

How- Build a balanced portfolio, have exposure to equity market, Reits, gold, guaranteed investment products, insurance. Focus on inflation adjusted, tax adjusted returns and cashflows rather than per anum returns in % terms.

“Give time to your investments, rather than timing your investments.”

 

Food for Thought:-

Equities today may be ok if one is starting a small SIP but may not be ok if one has a large Lumpsum to invest.

Equities may be ok for a young person but may not be ok for an elderly person.

Debt may not serve its purpose for a poor man but may be perfect for a rich man

A Financial Strategy is like making tailor made clothes which fit you perfectly well.Quality of fabric is content but if it does not fit you then it serves no purpose because it is out of context.

Therefore when it comes to your Investment never compare your strategy with that of others because your context and theirs are different.

What is a good investment' has no answer without understanding the context.

The role of an Advisor is to provide decent returns for his clients but the most important role is to manage and mitigate  risks involved in investing. 

Don't be in a rush to choose the investment product giving maximum returns, but  have a balanced exposure based on your risk appetite and mitigate your risk.

Consulting a financial advisor is highly recommended.

 

If you need any help regarding financial Planning or have any suggestions feel free to contact us at 9028912025 or email @ caakshatmodi@gmail.com.

#retirement#retirementplanning#investment#financialplanning#early retirement

 

Disclaimer :- This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or financial advice. You should consult your own tax, legal and financial advisors before engaging in any transaction.

 

 

EFFECTIVE FINANCIAL PLANNING FOR A HAPPY RETIREMENT

Hello everyone..

I hope you are doing great in your career and life.

I had been dealing with many IT professionals, doctors' businessman income tax returns and managing their finances since more than 6 years now and what I found was, that despite of earning handsome salaries or business income they lack long term wealth creation attitude or don't have any effective  retirement plan.

Most of them have parked their money either in Savings Account, Fixed Deposits, PPF, equity shares(bleeding portfolio holding stocks with emotion, no stop loss!) or Mutual funds but alignment with future goals is majorly missing.

They are excellent in their area of work, but lack the skills needed to manage their finances or making their money work for themselves effectively.

So Akshat, what exactly is effective retirement planning?

In order to  understand what retirement planning looks like, sharing the snippets of the successful financial planning call suggested and closed last week by our team.

1. This Couple is  working in Noida in IT and sales field respectively.

Income of husband is 32 lacs and age is 32 years.

Income of wife is 18 lacs age is  31 years.

Annual family income.   50 lacs

Income taxes paid.         10 lacs

Net in hand income.       40 lacs

Expenses.                        30 lacs

Annual savings               10 lacs 

(Details of expenses :- Car loan emi 25k, housing loan emi 60k, mutual funds and other investments 25k, house hold expenses  1.4 lac all per month)

Total 2.5 lac per month, annually 30 lacs.

2. What we suggested?

     A) Invest Rs 8 lacs per anum in a pension plan for 12 years, wait for 2 years and from 15th year receive 13 lacs per anum for next 25 years as pension.

                                                            and 

on 39th year receive back 98 lacs initial investment (Rs 8 lacs paid  for 12 years) guaranteed money back.

If we sum up the benefits of this investment,

IRR is 7% p.a. tax free.(outflow-inflow)

Insurance cover from day 1 of Rs 1 crore.

These are guaranteed returns with no alterations whatsoever.

Total outflow of funds is Rs 98 lacs and Total inflow is Rs  4.19 crore.

Net gain over the year is 3.2 crores.

   B) Invest Rs 2.4 lacs per anum in equity market linked product for 15 years.

IRR is 13 % p.a. tax free 

Insurance cover of Rs 24 lacs from day 1.

out flow in 15 years is Rs 36 lacs and expected inflow after 15 years is Rs 1.2  crore.

Note:- In Equity Market based product, returns are linked to performance of Indian stock Market.

   C) Apart from these investments we advised  some income tax saving instruments which was the cherry on the cake.(annual tax saving of Rs 25,000 on interest income from Fixed Deposits)

By mixing the guaranteed return product and market based product we have mitigated risk  and returns and this is commonly known as portfolio balancing.

Initially the client was hesitating to commit such amount of Rs 8 lacs p.a. for 12 years. But eventually he understood the importance of goal based investing and made a good financial decision.

At present also he had a corpus in FDs mutual funds etc (approx 20 lacs) but the alignment with future requirements was missing which is the crux for any sensible investing.

We are currently working on a retirement plan for a IT couple having annual income of 60 lacs and suggesting for investment of Rs 10 lacs p.a. in pension plan for retirement and 5 lacs p.a. in equity market linked product.

I hope you understand the basics..

So here I wish to present myself as a financial doctor to better your finances and help you to create long term wealth and a effective retirement plan.

If you  want to effectively plan your retirement I can surely demonstrate a presentation on google meet that will definitely change your horizon on how you look at investment, insurance and money.

Contact at 9028912025 for more details.

Happy reading!

#investment#financial freedom#early retirement#retirement plan.

#think twice#act wise.

Is it compulsory to take gst registration in case of export of service? 'OR' I am a freelancer/professional and also a blogger, I recently setup my adsense account and started earnings in $. Do I need to get GST registration compulsorily?

 

Provision of Law:- 

As per section 24(i) of cgst Act,2017 Every Person making any interstate taxable supply of service is compulsorily liable to take GST registration.

As per Section 22 of cgst Act, 2017 Every supplier shall be liable to be registered under this Act in the State from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds Rs. 20 Lacs.

Is there any contradiction? 

Yes, As per section 24(i) if a person of Maharashtra supplies services in Madhya Pradesh, he has to compulsorily gets registered under GST.

Whereas, as per section 22 only if aggregate turnover exceeds Rs 20Lacs, a person has to take GST registration.

This issue was partially resolved by the notification issued on 13-10-2017.

Through this notification Government has given relief to persons making interstate taxable supply  of services (not Goods) if aggregate turnover is upto Rs. 20 Lacs to take compulsory GST registration.

Ans

No its not compulsory to take GST registration in case of export of service if your aggregate turnover is less than Rs 20 Lacs.

Even if you are a Blogger and a Professional, check your aggregate turnover to take GST registration(if crosses Rs 20 Lacs).

You are out of ambit of compulsory GST registration under GST Act. 

Pain Point for Supplier of Goods.

Even if you are small trader, turnover below Rs 40 Lacs(earlier Rs 20 Lacs) and you wish to make sale in other states you have to compulsorily take GST registration.

Important Pointers:-

Every Export of service is considered as interstate supply of service, so IGST will be charged and not CGST or SGST in invoice.

Before GST Law, there was no need to take registration in case of 100% export of services, unless you need to claim export benefit under any scheme from government.

Google is a giant and has many companies incorporated under different countries. Generally for Indian Bloggers Google deals via Singapore based company Google Singapore PTE Ltd. 

For Services to be classified as Export of service, following conditions needs to be satisfied:-

Place of Supply- Outside India

Location of supplier - In India

Payment to be received in convertible foreign exchange

Enjoy Reading!!!

 

For any suggestion or queries you can reach out to me at caakshatmodi@gmail.com or at 9028912025.

Disclaimer :- This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting Advice. You should consult your own tax, legal and accounting Advisors before engaging in any transaction.

HOW BLACK MONEY IS USED IN PROPERTY TRANSACTIONS?

 

Hello everyone..

 

Today’s topic is of very keen interest for everyone, reason is quite simple it involves the hot topic of discussion in every get together or social gatherings i.e. Black Money and Property.

By this article i will try to unfold in simple language the modus operandi by which people route their black money to purchase property.

 

Let’s understand this by a hypothetical example..

Mr. Malhotra is a renowned business man dealing in trading of readymade garments. His turnover is Rs. 1 crore p.a. for past 10 years. His actual profit margin is 20% but in his income tax return he declared only 5 % (by claiming some dummy expenses).

In absolute terms instead of showing actual income of Rs. 20 Lacs and paying roughly Rs. 4 Lacs as income tax, Mr. Malhotra suppressed his income and declared only Rs. 5 Lacs as income and hence paid Rs. 0 as income taxes.(after claiming rebate of Rs. 12500 under section 87A. Upto Rs. 2,50,000 there is no income tax liability from 2,50,000 to 5,00,000 there is 5% tax liability but with rebate under section 87A).

 

Q) Why did Mr. Malhotra suppressed his income to Rs. 5 Lacs instead of declaring Rs. 20 Lacs?

 

Ans) To save income tax worth Rs. 4 Lacs per anum.

 

Moving forward, now in 10 years. Mr Malhotra has generated Rs.1.5 crore (20 Lacs-5 Lacs*10 years.) worth black money/ undisclosed income.(income on which income tax is not paid).

This has to kept in cash form, since it’s a black money it cannot be deposited in bank account.

Assuming personal expenses worth Rs. 5 Lacs every year, over the period of 10 years Mr. Malhotra should have saved Rs. 1 crore in cash.

 

In many states it is generally found that stamp duty value of property is far less than market value of property.

Meaning for a plot of land in richest area of a city, Government stamp duty value/Market value as per Government might be Rs.. 40 Lacs only but actual market price prevailing in market can be as high as Rs. 1 crore.

 What happens next is Mr. Malhotra approaches a broker to buy a property where stamp duty value is far less than the market value like we have seen in above example.

Broker shows him the property where stamp duty value is Rs. 30 Lacs and market value is Rs. 1.1 crore. The property was located in a premium location and the deal was locked.

(Mr. Malhotra was overwhelmed, thinking now life is set)

Let’s try to find out why Mr Malhotra is so happy getting this deal.

Q) how this deal will take place on record?

Ans) Since total price of the land is Rs. 1.1 crore, and stamp duty value of land is only Rs. 30 Lacs. The registry will take place at Rs. 30 Lacs only, meaning Mr. Malhotra will give Rs. 30 Lacs through banking channel either cheque, DD, neft, rtgs etc and rest 80 Lacs he will pay in cash. Stamp duty @ 6% will be paid on 30 Lacs only.

(Stamp duty is to be paid on every exchange of hand in property transaction.)

Remember on this 80 Lacs Mr. Malhotra didn’t paid any income tax and this black money which he can’t deposit in his bank account is now routed in economy through this deal.

So now on paper he is owner of land worth Rs. 30 Lacs only but actually he is owner of property worth Rs. 1.1 crore.

His unaccounted cash/undisclosed income is utilized and is now part of the economy.

 

Enjoy Reading!!!

 

For any suggestion or queries you can reach out to me at caakshatmodi@gmail.com or at 9028912025.

 

You can follow me on other social media handles from below links :-

https://www.linkedin.com/in/akshat-modi-2ba297a0

 

https://www.facebook.com/akshat.modi.372

 

https://www.instagram.com/akshat3636

 

https://twitter.com/ModiAkshat?t=k5aO4-AqiuUKUXfnu4Fsdg&s=08

 

https://t.me/fcaakshatmodi

 

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Disclaimer :- This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisor before engaging in any transaction.

SECTION 44AB vis a vis 44AD Queries Unfolded

 

Hello everyone

 

There was always a lot of confusion about applicability of income tax audit for certain class of person, those people who declare profit less than 6/8% of their turnover (6% in case of turnover done through banking channel and 8% in case of turnover done in cash mode) or in case of person declaring losses.

Currently also there is a lot of buzz about the same topic and this prevails in every tax audit season.

By this article I will try to unfold all the relevant provisions and hope by the end of this article everyone gets a bit more clarity relating to section 44AB/44AD .

I will draft this article in QNA pattern so that maximum doubts can be covered and that too in easy to understand language. In the end of the article will be sharing extremely easy flowchart to find out applicability of audit, so stay tuned and read till last.

Also for businesses having turnover above Rs 1 crore, there is not much ambiguity regarding applicability of audit. An analysis of cash transactions both receipt and payment would help in determining applicability of Tax audit. If cash transactions are less than 5% of total receipt AND payment, than even if your turnover is more than Rs 1 crore but upto Rs 10 crore tax audit is not required.(Applicable from assessment year 2021-2022)

So here goes the questions for businesses having turnover below Rs 1 crore :-

 

 

1.My turnover is less than Rs1 crore and  Profit is less than Rs 2.5 lacs but Total income is more than Rs 2.5 lacs whether I need to get my books of account audited?

Ø  The audit limit under section 44AB (a) of Rs 1 crore is not crossed, hence under section 44AB(a) audit is not applicable.

Now check whether in previous year you have opted to file return under section 44AD (irrespective of turnover).

If not opted for section 44AD, books of account maintained, income tax return filed with proper balance sheet and profit and loss account then no need for audit, prepare balance sheet and profit and loss account of current year and file return.

But if opted for section 44AD in previous year and this time opting out i.e. not showing 6/8% profit of the turnover then, you cannot opt for section 44AD for 5 successive year.(section 44AD(4)).

Now Section 44AD(5) comes into play which says, if Section 44AD(4) is applicable

 “AND”

 Total income is more than Rs 2.5 Lacs then you have to maintain books of account and get them audited.

In this case although profit is less than Rs 2.5 Lacs but Total income is more than Rs 2.5 Lacs audit under section 44AB(e) is applicable.

 

 

2. My Turnover is less than Rs 1 crore and  Loss is Rs 5 lacs and I do not have any other income whether i need to get my books of account audited?

Ø The audit limit under section 44AB (a) of Rs 1 crore is not crossed, hence under  section 44AB(a) audit is not applicable.

Now check whether in previous year you have opted to file return under section 44AD (irrespective of turnover).

If not opted for section 44AD, books of account maintained, income tax return filed with proper balance sheet and profit and loss account then no need for audit, prepare balance sheet and profit and loss account of current year and file return.

But if opted for section 44AD in previous year and this time opting out i.e. not showing 6/8% profit of the turnover then, you cannot opt for section 44AD for 5 successive year.(section 44AD(4)).

Now Section 44AD(5) comes into play which says, if Section 44AD(4) is applicable

“AND”

Total income is more than Rs 2.5 Lacs then you have to maintain books of account and get them audited.

In this case since there is loss of Rs 5 Lacs so Total income is less than Rs 2.5 Lacs, hence audit under section 44AB(e) is not applicable.

 

 

3.My turnover is Rs 99 lacs  all through banking channel and profit is 4 lacs whether i need to get my books of account audited?(since profit is less than 6%) I had opted for section 44AD in previous year.

Ø  The audit limit under section 44AB (a) of Rs 1 crore is not crossed, hence under  section 44AB(a) audit is not applicable.

Now check whether in previous year you have opted to file return under section 44AD (irrespective of turnover).

Yes opted 44AD in previous year and this time opting out i.e. not showing 6/8% profit of the turnover then, you cannot opt for section 44AD for 5 successive year.(section 44AD(4)).

Now Section 44AD(5) comes into play which says, if Section 44AD(4) is applicable

“AND”

Total income is more than Rs 2.5 Lacs then you have to maintain books of account and get them audited.

In this case since Total income is more than Rs 2.5 Lacs audit under section 44AB(e) is applicable.

 

The legislative intent behind this section, may be to act as deterrent for the assessee from misusing the provisions of presumptive taxation by frequently shifting from presumptive taxation to non-presumptive taxation and vice-versa.

 

Lets understand the legislative intent behind this clause by an example:-

In previous year Mr. Gupta had a business turnover of Rs. 90 lacs all through banking channel. He opted for  section 44AD in that year and declared profit @ 6% of turnover which comes to Rs 5,40,000/-. After claiming the deductions under section 80C of Rs 50,000/-, his total income comes out to be Rs. 4,90,000/-. He does not have any other deduction under the income tax act. Thus after claiming rebate under section 87A(since Total income does not exceed Rs 5,00,000/- eligible for rebate), his  tax liability was nil.

He has opted to file under old tax regime and not under section 115BAC.

Now in current year on Rs. 99 lacs turnover all through banking channel his

Net Profit (6% of Rs 99 lacs) is Rs       5,94,000/-

Gross Total income is Rs                    5,94,000/-

Section 80 C deduction Rs                    50,000/-

Total income is Rs                              5,44,000/-

Income tax on above income is Rs         22,152/-

5%   on Rs 2,50,000/- i.e. Rs                12,500/-

 20% on Rs    44,000/- i.e. Rs                 8,800/-

Total tax                             Rs              21,300/-

4% Cess on Rs 21,300/-i.e. Rs                   852/-

Total tax including cess       Rs              22,152/-

 

Now with an intention to evade tax worth Rs 22,152, Mr gupta wants to file return of income with balance sheet and profit and loss account so as to claim some dummy expenses worth Rs 45,000/- and ultimately reducing total income to Rs 4,99,000/- i.e below Rs 5,00,000/-. This will make him eligible for rebate under section 87A and thus in current year also his tax liability will be nil.

In order to curb these illegitimate switches between section 44AD and normal return filing with financial statements the government has enacted section 44AD(4) and 44AD(5).

 

4. I am opting for section 44AD since last 5 years, my turnover in previous  financial year crossed Rs 2 crore so I got my books of account audited for that year. Now in current financial year my turnover is only Rs 1.90 crore, do I need to get my books of account audit for this year or I can opt for filing under section 44AD?

Ø As per section 44AD(4) if a person opts for section 44AD in previous year and this time opting out i.e. not showing 6/8% profit of the turnover then, you cannot opt for section 44AD for 5 successive year.

In previous financial year, you were mandatorily required to get books of account audited since turnover crossed Rs 2 crore and you do not have the option to opt for section 44 AD for return filing. Since you have not opted out voluntarily for illegitimate tax evasion but to comply with the law you can opt for section 44AD in current financial year and audit is not compulsory.

 

FEW IMPORTANT POINTS :-

1. Only Individuals, Huf And   Partnership Firm excluding LLP Can Opt For Section 44AD.

2. A Person earning Commision Income Cannot Opt For Section 44AD.

3.A Person Can Opt For Section 44AD Only If Turnover Does Not Cross Rs 2 Crore In A Year.

Attaching herewith pdf of FAQ issued by income tax department which covers various queries relating to this topic.

 

https://www.incometaxindia.gov.in/Tutorials/13.%20Tax%20on%20presumptive%20basis%20in%20case%20of%20certain%20eligible%20businesses.pdf

 

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Disclaimer :- This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.