Section 44ad - Will only 6% or 8% be added to my capital?

[Nitin Goyal]

I want to switch to ITR-4Sunder section 44AD. I am running an eligible business, no doubt on that. In the past years, my profit ratio has been well above 6% of the gross receipts, even upto 40% in some years, but it's very inconsistent. All my receipts are digital so I am eligible for presumptive income @ 6%.

Assuming my gross digital receipt is 1 crore and I show presumptive income of 6 lakhs, and I had made a mutual fund investment of 20 lakhs. Can the IT department consider 14 lakhs (20-6) as my undisclosed income and impose penalty etc.?

I don't even know the actual profit since I don't maintain books, as relaxed by this provision. Now, my question is whether only ₹ 6 lakhs will be considered as my addition to the capital and any excess amount (out of the recorded digital turnover) found in my bank/investment will be considered as undisclosed income (liable for penalty etc.).

If so, what is the main benefit of section 44AD? Is it just freedom from bookkeeping for the eligible assesses, or should it be considered as a discounted slab in income tax, and any amount within the digital turnover could be considered as capital?

AI Summary

Understanding Section 44AD: Digital Receipts and Capital Addition for Small Businesses with Turnover Under 2 Crores An individual is considering switching to ITR-4S under Section 44AD for their eligible business, where all receipts are digital. They question whether only 6% of their gross digital receipts, assumed to be 1 crore, will be added to their capital, and if the remaining amount from their investments could be considered undisclosed income, leading to penalties. They seek clarity on whether Section 44AD offers more than just bookkeeping relief. A respondent clarifies that Section 44AD is not a discounted tax slab but applies to eligible businesses with turnover under 2 crores.