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Business/Profession – Practical Problems

Let's dive deeper into specific scenarios: Presumptive Taxation choices and Professional Income calculations. These are high-probability exam topics!

Problem 1: Presumptive Taxation (Section 44AD)

Mr. Arun (Retail Trader) details for FY 2024-25:

  • Total Turnover: ₹1,50,00,000 (₹1.5 Cr).
  • Turnover received by Cheque/UPI: ₹1,20,00,000.
  • Turnover received in Cash: ₹30,00,000.
  • Actual Net Profit as per books: ₹6,00,000.
  • He wants to know his taxable income options.

Option A: Declare Actual Profit

  • Income: ₹6,00,000.
  • Condition: Since ₹6L is < 6%/8% of turnover, he MUST maintain Books of Accounts (44AA) and get Tax Audit done (44AB) because income > Basic Exemption Limit.

Option B: Opt for Presumptive Taxation (Section 44AD) Calculate deemed profit:

  • On Digital Turnover (₹1.2 Cr @ 6%): ₹7,20,000.
  • On Cash Turnover (₹30 L @ 8%): ₹2,40,000.
  • Total Deemed Income: ₹9,60,000.
  • Benefit: No Books, No Audit.

Decision:

  • If he pays tax on ₹9.6L, he avoids audit & bookkeeping hassle.
  • If he pays tax on ₹6L, he saves tax but pays Audit Fees (~₹15-20k) and must maintain books.

Problem 2: Doctor's Income (Section 44ADA vs Normal)

Dr. Kavita (Physiotherapist):

  • Gross Receipts: ₹40,00,000.
  • Expenses (Rent, Staff, Elect): ₹15,00,000.
  • Professional Tax paid: ₹2,500.
  • Interest on Car Loan: ₹30,000.

Analysis:

  • Actual Profit: 40L - 15L - 2.5k - 30k = ₹24,67,500.
  • Presumptive Profit (44ADA): Flat 50% of Receipts = ₹20,00,000.

Conclusion:

  • Since Actual Profit (₹24.67L) > Presumptive Profit (₹20L), she should Opt for Section 44ADA.
  • She declares ₹20,00,000 as income.
  • Saves tax on ₹4.67 Lakhs!
  • Note: Under 44ADA, all expenses (including depreciation & interest) are deemed allowed. She cannot deduct them again.

Problem 3: Depreciation Block Calculation

M/s XYZ Traders (Block: Plant & Machinery 15%):

  • Opening WDV (1-4-2024): ₹10,00,000.
  • Purchased Machine A (May 2024): ₹5,00,000.
  • Purchased Machine B (Dec 2024): ₹4,00,000.
  • Sold Machine C (Old) (Jan 2025): ₹18,00,000.

Calculate Depreciation & Capital Gain:

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Variation: If Sale Value was ₹20,00,000:

  • 19L - 20L = -1L.
  • WDV: Nil.
  • Short Term Capital Gain: ₹1,00,000.
  • Depreciation: Nil.

Problem 4: Firm's Remuneration

Partnership Firm Book Profit: ₹8,00,000.

  • Deed authorizes Salary to partners: ₹6,00,000.
  • Calculate Allowable Salary under Section 40(b).

Solution:

  1. On first 3 Lakhs of Profit: Higher of (1.5L or 90%) = ₹2,70,000.
  2. On balance 5 Lakhs: 60% of 5L = ₹3,00,000.
  3. Max Admissible: ₹2.7L + ₹3.0L = ₹5,70,000.
  4. Actual Paid: ₹6,00,000.

Allowed Deduction: ₹5,70,000. Disallowed (Taxable in Firm's hands): ₹30,000.

Summary

  • Presumptive (44AD): Compare 8%/6% of turnover vs Actual Profit. Choose beneficial option (consider Audit cost).
  • Presumptive (44ADA): Compare 50% of receipts vs Actual Profit. Usually beneficial for Service Professionals with low expenses.
  • Depreciation: If Sale > (Opening + Purchase), block ceases → STCG.
  • 180 Days Rule: Applies to the remaining WDV if it represents the new asset.

Quiz Time! 🎯

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