Section 44 AD - Independent IT Contractor , client in US

subbu2007 · Post by **subbu2007** » Tue Oct 02, 2012 11:59 pm

I am an independent IT Contractor (Indian citizen) providing IT Consulting services to a US company. Payment is made directly to my Indian savings account in USD, so i know i am service tax exempt since my services are used outside of India.
Do i qualify under Section 44 AD of Indian Tax so that i need not maintain any books for my expenses incurred ? (my annual income is less than the 60 lacs limit under section 44 AD)
I have already paid 30% advance tax before Sept 15th.

post_r2i06 · Post by **post_r2i06** » Tue Oct 09, 2012 9:45 am

Its best to maintain books, so that profit can be calculated. The tax is on profit ( and not your entire income). 44AD talks about auditting of books ( and not necessarily about maintaining of books).

There are free accounting s/w that can be used. Its pain and extra work but best to do it... as ITO will ask for balance sheet, P and L statement sometime in future. Keeping books will also help you in fillling ITR-4 ( which is what you will be using to file tax returns).

subbu2007 · Post by **subbu2007** » Wed Oct 10, 2012 9:02 pm

Section 44 AD is about not maintaining books of accounts for qualified businesses if annual gross reeipt is less than 60 lacs, please see below link:
http://taxmantra.com/ereturns/other/presumptive-taxation-44ad-ay-201112.html

I am not sure if an independent IT Consultant qualifies under this section or not ?

post_r2i06 · Post by **post_r2i06** » Thu Oct 11, 2012 1:18 pm

Pls read 44AA ( 1) and (2). Being independent can also mean you are in business of "techincal consultancy".

I had asked CA about this, as 8% of revenue as profit and pay income tax on that, is too good an offer!!!.

For 44AD, eligible businesses are those that have very low profit margin such as retail(typical margn is 5%), construction, trading etc and Govt gave them an option to atleast pay 8%, w/o any books or questions asked by IT dept.

IT dept knows the profit margin of software services is 30%+(even for big companies) , so they will never just allow software folks to declare profit as 8%.

Incase you find otherwise, let me know ...

subbu2007 · Post by **subbu2007** » Tue Nov 20, 2012 11:32 pm

Do we need to do "serivce tax registration" eventhough it is exempt since income is earned in USD ?

kodur_Sathya · Post by **kodur_Sathya** » Sun Nov 25, 2012 10:11 am

subbu2007;476608Section 44 AD is about not maintaining books of accounts for qualified businesses if annual gross reeipt is less than 60 lacs, please see below link:
http://taxmantra.com/ereturns/other/presumptive-taxation-44ad-ay-201112.html

I am not sure if an independent IT Consultant qualifies under this section or not ?

Extract of few important subsection and explanation that suits our discussion.

44AD. (1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession".(2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed :

and explanation to
[SUP]a[/SUP][(6) The provisions of this section, notwithstanding anything contained in the foregoing provisions, shall not apply to—
(i) a person carrying on profession as referred to in sub-section (1) of section 44AA;
(ii) a person earning income in the nature of commission or brokerage; or
(iii) a person carrying on any agency business.]
Explanation.—For the purposes of this section,—
(a) "eligible assessee" means,—
(i) an individual, Hindu undivided family or a partnership firm, who is a resident, but not a [SUP]44[/SUP]limited liability partnership firm as defined under clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009); and
(ii) who has not claimed deduction under any of the sections 10A, 10AA, 10B, 10BA or deduction under any provisions of Chapter VIA under the heading "C. - Deductions in respect of certain incomes" in the relevant assessment year;
(b) "eligible business" means,—
(i) any business except the business of plying, hiring or leasing goods carriages referred to in section 44AE; and
(ii) whose total turnover or gross receipts in the previous year does not exceed an amount of [SUP]44a[/SUP][[SUP]45[/SUP][sixty lakh rupees]].]

and this has been increased to one crore.

Now the intepretation are
1) This computation could be extended to software services because of the following reasons
i) It is not restricted in the explanation. The explanation restricts only agency services or a person who are required to maintain books of accounts u/s 44AA
ii) This services could come under eligible business.
The Income tax officers cannot take a view that because these business are earning more profit, they have to pay more taxes and not just 8%. This view is not sustainable.
but another view point cannot be ruled out.
reading of section 44AA is provided hereunder
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[SUP]6[/SUP] by the Board in the Official Gazette shall keep and maintain such books of account and other documents as may enable the [SUP]7[/SUP][Assessing] Officer to compute his total income in accordance with the provisions of this Act.

The income tax officer may extend the technical consultancy to include software contracts, whole one have to argue that this technical consultancy cannot be extended to software contracts. :)

So different view points, different interpretations.

Sathya

kodur_Sathya · Post by **kodur_Sathya** » Sun Nov 25, 2012 12:01 pm

Well, we share the following for information.

NOTIFICATION 3
In exercise of the powers conferred by sub-section (1) of section 44AA of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby notifies the profession of information technology for the purposes of the said sub-section.
Notification : No. SO 385(E), dated 4-5-2001.

Hence in this case, the income cannot be computed under section 44AD

simbakpr · Post by **simbakpr** » Thu Feb 18, 2016 6:51 pm

Hi,
Can you please send me your contact details? I am in a similar situation. Thanks.

subbu2007;476012I am an independent IT Contractor (Indian citizen) providing IT Consulting services to a US company. Payment is made directly to my Indian savings account in USD, so i know i am service tax exempt since my services are used outside of India.
Do i qualify under Section 44 AD of Indian Tax so that i need not maintain any books for my expenses incurred ? (my annual income is less than the 60 lacs limit under section 44 AD)
I have already paid 30% advance tax before Sept 15th.