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Home/Questions/Page 34

Taxchopal Latest Questions

CA Vishnu Ram
CA Vishnu RamEnlightened
Asked: November 29, 2021In: Income Tax

Who has to get his accounts audited on compulsory basis under Income Tax Act?

  1. CA Sanjiv Kumar Enlightened Chartered Accountant
    Added an answer on April 15, 2025 at 12:39 pm

    Under the Income Tax Act, 1961, as amended by the Finance Act, 2025, the following categories of taxpayers are mandatorily required to get their accounts audited under Section 44AB for the Financial Year (FY) 2024–25 (Assessment Year 2025–26):​ 🔹 1. Businesses Turnover exceeding ₹1 crore: If the totRead more

    Under the Income Tax Act, 1961, as amended by the Finance Act, 2025, the following categories of taxpayers are mandatorily required to get their accounts audited under Section 44AB for the Financial Year (FY) 2024–25 (Assessment Year 2025–26):​


    🔹 1. Businesses

    • Turnover exceeding ₹1 crore: If the total sales, turnover, or gross receipts exceed ₹1 crore in a financial year, a tax audit is mandatory.​

    • Turnover between ₹1 crore and ₹10 crore: If the turnover is up to ₹10 crore and cash transactions do not exceed 5% of the total receipts and payments, a tax audit is not required. This promotes digital transactions and reduces compliance for businesses operating primarily through banking channels.

    • Turnover exceeding ₹10 crore: Regardless of the mode of transactions, if the turnover exceeds ₹10 crore, a tax audit is compulsory.​


    🔹 2. Professionals

    • Gross receipts exceeding ₹50 lakh: Professionals such as doctors, lawyers, architects, etc., must undergo a tax audit if their gross receipts exceed ₹50 lakh in a financial year.​

    • Enhanced threshold to ₹75 lakh: If cash receipts do not exceed 5% of the total gross receipts, the threshold for mandatory tax audit is increased to ₹75 lakh. ​


    🔹 3. Presumptive Taxation Scheme Optants

    • Section 44AD (Businesses): If a taxpayer declares profits lower than the prescribed rate (8% or 6% for digital transactions) and their total income exceeds the basic exemption limit, a tax audit is required.​

    • Section 44ADA (Professionals): Professionals opting for presumptive taxation under this section must get their accounts audited if they declare profits lower than 50% of gross receipts and their total income exceeds the basic exemption limit.​


    🔹 4. Other Specific Cases

    • Section 44AE, 44BB, or 44BBB: Taxpayers declaring income lower than the deemed profits under these sections and whose total income exceeds the basic exemption limit are required to get their accounts audited.​


    ⚠️ Penalty for Non-Compliance

    Failure to comply with the tax audit provisions can attract a penalty under Section 271B, which is the lesser of:​

    • 0.5% of the total sales, turnover, or gross receipts, or​

    • ₹1,50,000.​

    However, if the taxpayer can demonstrate a reasonable cause for the failure, the penalty may be waived.

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CA Vishnu Ram
CA Vishnu RamEnlightened
Asked: November 29, 2021In: Income Tax

What are the specified books as per Income Tax Act?

  1. CA Manish Kumar Gupta Enlightened
    Added an answer on April 22, 2025 at 12:05 pm

    As per Section 2(12A): “Books or books of account” includes ledgers, day-books, cash books, account-books, and other books, whether kept in written form or as printouts of data stored in electronic media.” Further Rule 6F prescribes specified Books to be Maintained by Professionals as below Cash BooRead more

    As per Section 2(12A):

    “Books or books of account” includes ledgers, day-books, cash books, account-books, and other books, whether kept in written form or as printouts of data stored in electronic media.”

    Further Rule 6F prescribes specified Books to be Maintained by Professionals as below

    1. Cash Book – Daily cash receipts and payments

    2. Journal – Chronological record of transactions (if mercantile system)

    3. Ledger – Summary of all accounts

    4. Carbon copies of bills issued (if over ₹25)

    5. Original bills for expenses above ₹50

    Additional for Medical Professionals (Rule 6F(3)):

    • Daily case register in Form No. 3C

    • Inventory of medicines and consumables at year-end

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CA Vishnu Ram
CA Vishnu RamEnlightened
Asked: November 29, 2021In: Income Tax

Who is required to maintain books of accounts as per income tax act?

  1. CA Manish Kumar Gupta Enlightened
    Added an answer on April 22, 2025 at 12:18 pm

    Section 44AA mandates the maintenance of books of accounts by certain professionals and businesses, depending on their income, turnover, and the nature of business. 🏢 A. Specified professions include: Legal Medical Engineering Architecture Accountancy Technical consultancy Interior decoration Film aRead more

    Section 44AA mandates the maintenance of books of accounts by certain professionals and businesses, depending on their income, turnover, and the nature of business.

    🏢 A. Specified professions include:

    • Legal

    • Medical

    • Engineering

    • Architecture

    • Accountancy

    • Technical consultancy

    • Interior decoration

    • Film artists

    • Authorized representatives

    • Company secretaries

    • Information technology professionals

    ✅ Required to maintain books if:

    As per Section 44AA(1):

    “If gross receipts from such profession exceed ₹2,50,000 in any one of the three immediately preceding previous years.”

    📘 Such professionals must maintain books as per Rule 6F (covered later below).


    🏢 B. Businesses (Non-specified professions)

    ✅ Books required under Section 44AA(2) if:

    • Income from business or profession exceeds ₹2,50,000 in any one of the 3 preceding years
      OR

    • Turnover or gross receipts exceed ₹25,00,000 in any of the 3 preceding years


    💼 C. Persons not covered above but opting out of presumptive taxation (Section 44AD/44ADA/44AE)

    If the person:

    • Declares income less than the presumptive rate
      AND

    • Their income exceeds the basic exemption limit,
      ➡️ Books of account must be maintained.

    Sumamry:

    Category Threshold            Books Required?
    Specified professionals Gross receipt s > ₹2,50,000 Yes, under Rule 6F
    Business Income > ₹2,50,000 OR

    Turnover > ₹            25 lakh

    Yes, as per 44AA(2)
    Presumptive tax scheme

    opt-out

    If income > basic

    exemption

    limit

    Yes

     

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CA Vishnu Ram
CA Vishnu RamEnlightened
Asked: November 29, 2021In: Income Tax

Who is required to maintain books of accounts?

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CA Vishnu Ram
CA Vishnu RamEnlightened
Asked: November 29, 2021In: Income Tax

What is specified and non specified profession as per Income Tax Act?

  1. CA Manish Kumar Gupta Enlightened
    Added an answer on April 22, 2025 at 12:20 pm

    1. Specified Profession under Income Tax Act As per Section 44AA(1): "Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the OfficialRead more

    1. Specified Profession under Income Tax Act

    As per Section 44AA(1):

    “Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette…”

    These are known as “Specified Professions”.

    ✅ List of Specified Professions (under Section 44AA read with Rule 6F):

    📌 Specified Profession 👨‍💼 Who It Covers
    Legal Profession Advocates, legal consultants
    Medical Profession Doctors, dentists, pathologists
    Engineering Civil, mechanical, electrical engineers, etc.
    Architecture Registered architects
    Accountancy Chartered Accountants, Cost Accountants
    Technical Consultancy IT consultants, technical service providers
    Interior Decoration Interior designers
    Film Artists As notified under Rule 6F – actor, director, editor, etc.
    Company Secretaries As notified by CBDT
    Authorized Representatives Tax consultants, agents appearing before authorities
    Information Technology Professionals As notified – includes software developers, IT consultants

    📜 CBDT Notification expands the list under powers given in Section 44AA(1).


    📦 2. Non-Specified Professions (General Business & Other Services)

    Any profession or service which is not listed above is treated as a Non-Specified Profession under the Act.

    🔹 Examples include:

    • Tuition classes

    • Freelance writing

    • Consultancy not covered under technical domain

    • Marketing agents

    • Online content creators

    • Yoga instructors (unless notified)

    • Any unlisted profession/service activity

    These are not covered under Rule 6F, but may still be required to maintain books under Section 44AA(2) if income or turnover thresholds are breached.


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CA Vishnu Ram
CA Vishnu RamEnlightened
Asked: November 29, 2021In: Income Tax

what is deemed profit and how it is taxed under income tax act?

  1. CA Manish Kumar Gupta Enlightened
    Added an answer on April 22, 2025 at 12:44 pm

    1. Three sections deal with this matter: Section 40A(3) – Disallowance of cash expenditure Section 40A(3A) – Treatment of unpaid expenses paid in cash in subsequent years Rule 6DD – Exceptions to the above disallowance 2. What Does Section 40A(3) Say?" Where the assessee incurs any expenditure in reRead more

    1. Three sections deal with this matter:

    • Section 40A(3) – Disallowance of cash expenditure

    • Section 40A(3A) – Treatment of unpaid expenses paid in cash in subsequent years

    • Rule 6DD – Exceptions to the above disallowance

    2. What Does Section 40A(3) Say?“

    Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque or bank draft or use of electronic clearing system through a bank account, exceeds ₹10,000, no deduction shall be allowed in respect of such expenditure.”


    ✅ Key Points:

    🔍 Particular 📋 Rule
    Threshold limit ₹10,000 per person per day
    Mode of payment Must be through banking channel or electronic modes
    Cash payments > ₹10,000 Disallowed as business expense
    For transporters (hiring plying goods) ₹35,000 per day limit

    🔁 3. What is Section 40A(3A)?

    If an expense was allowed in a previous year on accrual basis, but it is actually paid in cash in a later year exceeding ₹10,000, then the cash payment is deemed as income of the year of payment.

    📌 In simple terms: The deduction is reversed and taxed in the year of cash payment.


    🔒 4. Exceptions under Rule 6DD

    Certain genuine situations allow cash payments > ₹10,000 without disallowance:

    ✅ Permissible Situations (Rule 6DD)
    Payment to government where banking service not available
    Payment made to villagers or agriculturists without bank access
    Payment on bank holidays or during natural calamities
    Payment to hospital, hotel, or transport agency in emergencies
    Payment made by village cooperative societies to members

    📌 Note: The burden of proving the genuineness of such payments lies on the taxpayer.


    🧾 5. Penalty or Consequence:

    • No penalty directly, but expenditure is disallowed, thereby increasing taxable profit.

    • Results in higher income tax liability.

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CA Vishnu Ram
CA Vishnu RamEnlightened
Asked: November 29, 2021In: Income Tax

What is the provision of expenditure made in cash under income tax act?

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CA Vishnu Ram
CA Vishnu RamEnlightened
Asked: November 29, 2021In: Income Tax

Whether payment made to relatives is disallowed under Income Tax Act?

  1. CA Manish Kumar Gupta Enlightened
    Added an answer on April 22, 2025 at 12:47 pm

    Whether payment made to relatives is disallowed under Income Tax Act? 1. Relevant Provisions in the Income Tax Act: Section 40A(2)(a) – Disallowance of excessive or unreasonable payments to related parties (including relatives) Explanation (b) to Section 40A(2) – Defines "related persons" Section 64Read more

    Whether payment made to relatives is disallowed under Income Tax Act?

    1. Relevant Provisions in the Income Tax Act:

    • Section 40A(2)(a) – Disallowance of excessive or unreasonable payments to related parties (including relatives)

    • Explanation (b) to Section 40A(2) – Defines “related persons”

    • Section 64 – Clubbing of income if remuneration is paid to spouse without substantial contribution

    2. Can Payment to Relatives Be Allowed as Deduction?

    Yes, payment to relatives is not automatically disallowed, but subject to scrutiny under Section 40A(2) of the Act.

    The law only disallows the portion of payment which is “excessive or unreasonable” having regard to:

    • Fair Market Value (FMV) of the goods/services

    • Legitimate needs of the business

    • Benefit derived by the business

    So, if the payment is at arm’s length and justifiable, it is allowed.

    3. Bare Act Text: Section 40A(2)(a)

    “Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of this sub-section, and the Assessing Officer is of the opinion that such expenditure is excessive or unreasonable… so much of the expenditure as is so considered by him shall not be allowed as a deduction.”

    4. Who Are Treated as “Relatives” for This Purpose?

    As per Explanation (b) to Section 40A(2):

    The term includes (but is not limited to):

    • Spouse of the individual

    • Brother or sister of the individual

    • Brother or sister of the spouse

    • Any lineal ascendant or descendant of the individual or spouse

    • Any individual having substantial interest in the business or profession of the assessee

    Also includes entities in which such relatives have substantial interest.

    5. Example Case:

    Let’s say a sole proprietor pays ₹40,000/month salary to his brother for doing clerical work.

    • If the market salary for such work is ₹20,000/month, then ₹20,000 may be considered excessive.

    • The Assessing Officer (AO) can disallow ₹20,000/month as unreasonable expenditure under Section 40A(2).

    6. What to Keep in Mind:

    ✅ Maintain proper documentation (appointment letter, qualification proof, work scope)
    ✅ Justify payment amount based on industry rates or FMV
    ✅ Avoid cash payments – use banking channels
    ✅ Make sure the relative actually works for the business

    7. Clubbing of Income (Section 64): A Separate Concern

    Even if salary paid to a spouse is reasonable, under Section 64(1)(ii):

    If no technical or professional qualification is held by the spouse and she/he does not contribute substantially, the income is clubbed with the assessee’s income.

    This is not a disallowance of expense, but clubbing of income for taxation.

    ✅ Conclusion:

    💡 Payments to relatives are not outright disallowed, but only the unreasonable or excessive portion is disallowed under Section 40A(2).

    Proper business justification, recordkeeping, and arm’s length payment are essential to ensure deduction is allowed.

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CA Vishnu Ram
CA Vishnu RamEnlightened
Asked: November 29, 2021In: Income Tax

Whether default of TDS is not allowed in Income Tax Act?

  1. CA Manish Kumar Gupta Enlightened
    Added an answer on April 22, 2025 at 12:51 pm

    Whether default of TDS is not allowed in Income Tax Act? Yes, default in TDS can lead to disallowance of expenses and penal consequences. 📌 As per Section 40(a)(ia): “30% of any sum payable to a resident on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or,Read more

    Whether default of TDS is not allowed in Income Tax Act?

    Yes, default in TDS can lead to disallowance of expenses and penal consequences.

    📌 As per Section 40(a)(ia):

    “30% of any sum payable to a resident on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified… shall not be allowed as deduction in computing the income chargeable under the head ‘Profits and gains of business or profession’.”

    In Simple Terms:

    If TDS is:

    • Not deducted – 30% of such expense is disallowed.

    • Deducted but not deposited within due date of ITR filing (Sec 139(1)) – 30% is disallowed.

    ✅ However, if TDS is paid later, the disallowed amount is allowed as deduction in the year of actual payment.

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CA Vishnu Ram
CA Vishnu RamEnlightened
Asked: November 29, 2021In: Income Tax

What expenditures or payments are disallowed under Income Tax Act?

  1. CA Manish Kumar Gupta Enlightened
    Added an answer on April 22, 2025 at 12:54 pm

    What expenditures or payments are disallowed under Income Tax Act? 1. Relevant Legal Provisions: Section 40 – General disallowance of certain expenses Section 40A – Disallowance of certain cash payments Section 40A(2) – Disallowance of excessive payments to related parties Section 40(a) – DisallowanRead more

    What expenditures or payments are disallowed under Income Tax Act?

    1. Relevant Legal Provisions:

    • Section 40 – General disallowance of certain expenses

    • Section 40A – Disallowance of certain cash payments

    • Section 40A(2) – Disallowance of excessive payments to related parties

    • Section 40(a) – Disallowance related to non-deduction of TDS

    • Section 43B – Certain expenses only allowed on actual payment basis

    2. General Expenditures Disallowed Under the Income Tax Act:

    2.1. Non-deduction of TDS (Section 40(a))

    If TDS is not deducted on certain payments (e.g., rent, professional fees, salary), then such payments will be disallowed.

    • Section 40(a)(ia) – If TDS is not deducted or deposited before the due date of filing of ITR, the expenditure will be disallowed.

    • deduction will be disallowed in computing the income.

    2.2. Payments Exceeding ₹10,000 in Cash (Section 40A(3))

    Any expenditure made in cash exceeding ₹10,000 in a day to a single person is disallowed unless it falls under the exceptions.

    2.3. Excessive Payments to Relatives or Related Parties (Section 40A(2))

    Expenditure or payments made to relatives or related parties which are deemed to be excessive or unreasonable in the opinion of the Assessing Officer will be disallowed.

    2.4. Payments to Non-Residents Without TDS (Section 40(a)(i))

    Payments made to non-residents without deducting tax at source (TDS), or not depositing the deducted TDS, are disallowed.

    2.5. Unpaid Liabilities (Section 43B)

    Certain expenditures like taxes, duties, and contributions to employee welfare schemes are allowed only if paid on time. If not paid within the relevant period, they will be disallowed.

    2.6. Capital Expenditure Without Actual Usage

    Capital expenditure on assets not put to use for business purposes is disallowed.

    2.7. Illegal Payments (Section 37)

    Any illegal payments or expenses made, including bribes or kickbacks, will be disallowed under Section 37, which disallows expenses not wholly and exclusively incurred for the business.

    2.8. Personal Expenses

    Personal expenditures that are not related to business are disallowed.

    2.9. Depreciation on Ineligible Assets

    Depreciation is allowed only on assets used for business purposes. If an asset is not used for business, depreciation on it will be disallowed.

    3. Summary Table: Disallowed Expenses Under Income Tax Act

    📅 Type of Payment/Expenditure 📜 Relevant Section ✅ Disallowed/Conditions
    Non-deduction of TDS Section 40(a) Expenditure disallowed if TDS not deducted or deposited
    Payments over ₹10,000 in Cash Section 40A(3) Disallowed if paid in cash (exceptions apply)
    Excessive payments to relatives or related parties Section 40A(2) Disallowed if deemed excessive or unreasonable
    Payments to non-residents without TDS Section 40(a)(i) Disallowed if TDS not deducted or deposited
    Unpaid liabilities (taxes, employee contributions) Section 43B Disallowed if not paid within the due date
    Personal or illegal expenses Section 37 Disallowed if personal or illegal
    Depreciation on ineligible assets Section 32 Disallowed if asset is not used for business

    ✅ Conclusion:

    Expenditures or payments are disallowed under the Income Tax Act if they do not meet the prescribed conditions of deduction, such as failing to comply with TDS provisions, being paid in cash exceeding specified limits, being excessive or unreasonable when paid to related parties, or being of a personal or illegal nature. Always ensure that payments are backed by proper documentation and are in compliance with the legal provisions to avoid disallowance.

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