If the professional receipts of a person are more than Rs. 50 Lakhs – the benefit of Presumptive Tax under Section 44ADA cannot be taken. In such a case, the person would be required to prepare a Profit & Loss Account and Balance Sheet as well as get his audit conducted by a practicing Chartered Accountant.
Compliances to be done in case the Professional Income is more than Rs. 50 Lakhs
If the Professional Receipts is more than Rs. 50 Lakhs, the following compliances need to be taken care of:-
- Preparation of Books of Accounts along with Balance Sheet and Profit & Loss A/c
If the professional receipts of a person exceed Rs. 50 Lakhs in any financial year, he is required to prepare proper books of accounts along with Balance Sheet and Profit & Loss A/c and use ITR 3 form to file his Income Tax Return.
- Audit under Section 44AB by a Chartered Accountant
As the annual receipts are more than Rs. 50 Lakhs, he would also be required to get an Income Tax Audit conducted by a practicing Chartered Accountant. The CA will verify all the facts and check copy of all invoices and accordingly prepare the Audit Report which is also required to be submitted along with the Income Tax Return.
- TDS Deduction on Payments
As the annual receipts are more than Rs. 50 Lakhs, TDS would also be required to be deducted on expenses. For the purpose of deducting and depositing the TDS, the person would also be required to obtain a TAN No.
The above are the compliances to be done under the Income Tax Act. In addition to the above mentioned compliances, the person would be required to do GST Compliances as well as the receipts are more than Rs. 20 Lakhs p.a.
Computation of Income and Tax levied thereon
The Income in this case would not be computed on presumptive basis but would be computed on actual basis i.e.
Income = Receipts – Expenses – Depreciation
To be eligible to claim expenses and depreciation, the person would be required to keep a copy of all expenses.
Post the computation of Income, Income Tax would be levied on this income as per the Income Tax Slab rates and the highest slab rate of 30% will get applicable.
How to Save Taxes on such Income
The person can also claim the benefit of the following deductions i.e.
- Deduction for Home Loan
- Deductions under Section 80C
- Deductions for Education Loan
- Deductions for Health Insurance
The complete list of deductions which can be claimed are mentioned here – List of Income Tax Deductions
Pro Tip: Even after claiming all expenses as well as the benefit of deductions, the income tax in most cases turns out to be abnormally high. To save out on taxes, smart people have started creating entities in Tax Havens like Dubai and pay Zero Tax on their Income. Refer: Tax Benefits of Creating an Entity in Dubai
