44 ad taxpayer

[rajesh pandya]

hi, I HAVE PROPRIETORSHIP BUSINESS. I WANT TO KNOW ABOUT IN PRESUMPTIVE TAX CAN SHOW SALARY TO WIFE OR SON OR DAUGHTER.

THANKS

[DR.MARIAPPAN GOVINDARAJAN]

If your wife or son or daughter is receiving salary from your business it will be an expenditure of the business.  No separate procedure for this.  

[YAGAY and SUN]

Yes, you can pay a salary to your wife, son, or daughter from your proprietorship business, even under the Presumptive Taxation Scheme (like u/s 44AD, 44ADA, or 44AE of the Income Tax Act). But there are a few important conditions and clarifications you should know:

📌 Presumptive Taxation Overview:

Under sections like 44AD, you declare profits on a presumptive basis (e.g., 6% or 8% of turnover), and you are not required to maintain books of accounts. In this scheme, deductions for expenses (like salaries) are generally deemed to be included in the presumptive income.

❓Can You Show Salary to Family Members?

✅ Yes, You Can Pay Salary, But:

1. Payment Must Be Genuine:
   • Your wife, son, or daughter must actually work in the business.
   • Salary must be commensurate with their work (not excessive).
2. Allowed under Section 44AD/44ADA:
   • Even though you can’t claim specific deductions, it is legally valid to pay family members for business-related work.
   • Their salary will not reduce your taxable income under presumptive tax (because you're taxed on presumptive income), but it will be considered their income and taxed in their hands.
3. Avoid Clubbing of Income (Section 64):
   • If wife/son/daughter is just being paid to save tax and not actually working, then the salary may be clubbed back into your income.
   • If they genuinely work and have qualifications/experience, clubbing provisions will not apply.

🧾 Example:

• You are a shop owner under 44AD.
• Your wife handles accounts, and you pay her ₹10,000/month.
• You declare 8% of turnover as income, and her salary is not separately deducted.
• Your wife files her own return, showing ₹1.2 lakh income.
• This is valid, provided it's genuine and supported by basic records (like salary register, bank transfers).

🧠 Summary:

Point	Allowed?	Note
Pay salary to wife/children	✅ Yes	Must be genuine and reasonable
Deduct salary separately under 44AD	❌ No	Expenses are deemed under presumptive scheme
Show it as their income	✅ Yes	Will be taxed in their hands
Avoid clubbing if not genuine	⚠️ Yes	Section 64 may apply

AI Summary

Presumptive taxation: Paying salary to family members is permissible but not deductible and may be clubbed if not genuine.
Payment of salary from a proprietorship to a wife, son, or daughter is permissible under presumptive taxation but must be genuine and commensurate with work; such salaries are not deductible against the proprietor's presumptive income, become taxable in the recipients' hands, and may be subject to clubbing or recharacterisation if paid solely to shift income. Maintain basic records to substantiate the employment.