I am an upcoming associate at a tier 1 law firm in Mumbai. I am confused about the income tax structure and the benefit of 44ADA which is available to professionals. Can anyone from the industry with experience help me out on this? Here are a few doubts which I have:
1. Can I claim other exemptions apart from 44ADA like 80C or 80GG (rent) etc.
2. Does the fact that 50% of my income is deemed "expense" mean that it should reflect in my bank account (for example if I earn 1lakh per month, does it mean that my bank account should reflect that I do not have more than 50k since I am claiming it as an expense)
I had also referred a CA regarding this and he gave me an example of the tax breakup which goes like:
Assuming the package is of 16 LPA. So by 44ADA, 50% is deducted and the taxable income is 8L. On this 8L, no other deductions can be claimed so by applying new regime, it comes to 36,400 (0-3L: no tax, 3-6L: 5% i.e. 15,000 and 6-8L: 10% i.e. 20,000 plus cess 4%)
Is this how the tax is paid or is there a different practice which goes around?
There is also another thread on LI about this but I didn't quite get it so looking for answers from experienced people with simplified version.
Yes. You are supposed to claim expenses only to the extent you have actually made such expenses. Thus, if you earned 16L in a year but spent only 3L, you cannot claim that you have spent 8L. Your bank statements and declared incomes would soon start varying drastically otherwise.
That's the understanding I (and several others) have on this. The deeming provision is only to the extent that your expenses will be deemed to be towards your profession - not that you will deemed to have made such expenses. Thus, the only practical aspect is you do not have to keep any invoices, bills etc. of your expenses.
I have seen many CAs disagree on this, however. A lot of people are still filing their returns claiming the full 50%, even though their accounts disagree. Most of the claims have been processed - but that does not mean it's legally correct and cannot become an issue for you.
Is there some sort of official clarification regarding this. I searched a lot but this disagreement on whether actual expenses should be there is just raging on. Well reputed CA friend of mine is disagreeing with you on this. Is there a mechanism to get clarification on ITA regarding this ?
PPF and ELSS mutual fund investments will allow you to claim under 80C upto 1.5 lakhs under the old tax regime. You can also claim deductions for any mediclaim premium that you pay under 80D. NPS T1 contribution will help you get deductions for additional 50K over and above this.
#1 - yes, but only if you are not going under the new tax regime.
#2 - yes, ideally, spend/withdraw 50% from your bank a/c.
If 80GG & 80C are applicable in your case, then you should be able to bring down your taxable income to 5.9 lacs and tax liability under old regime should be around ~32k.
Don't blindly trust your CA, ask around with other CAs and tax lawyers
1. Can I claim other exemptions apart from 44ADA like 80C or 80GG (rent) etc.
2. Does the fact that 50% of my income is deemed "expense" mean that it should reflect in my bank account (for example if I earn 1lakh per month, does it mean that my bank account should reflect that I do not have more than 50k since I am claiming it as an expense)
I had also referred a CA regarding this and he gave me an example of the tax breakup which goes like:
Assuming the package is of 16 LPA. So by 44ADA, 50% is deducted and the taxable income is 8L. On this 8L, no other deductions can be claimed so by applying new regime, it comes to 36,400 (0-3L: no tax, 3-6L: 5% i.e. 15,000 and 6-8L: 10% i.e. 20,000 plus cess 4%)
Is this how the tax is paid or is there a different practice which goes around?
There is also another thread on LI about this but I didn't quite get it so looking for answers from experienced people with simplified version.
Yes. You are supposed to claim expenses only to the extent you have actually made such expenses. Thus, if you earned 16L in a year but spent only 3L, you cannot claim that you have spent 8L. Your bank statements and declared incomes would soon start varying drastically otherwise.
That's the understanding I (and several others) have on this. The deeming provision is only to the extent that your expenses will be deemed to be towards your profession - not that you will deemed to have made such expenses. Thus, the only practical aspect is you do not have to keep any invoices, bills etc. of your expenses.
I have seen many CAs disagree on this, however. A lot of people are still filing their returns claiming the full 50%, even though their accounts disagree. Most of the claims have been processed - but that does not mean it's legally correct and cannot become an issue for you.
Previous threads:
https://www.legallyindia.com/convos/topic/207569-50-standard-tax-deduction-for-professionals-please-help
https://www.legallyindia.com/convos/topic/186351-presumptive-taxation-of-lawyers
#2 - yes, ideally, spend/withdraw 50% from your bank a/c.
If 80GG & 80C are applicable in your case, then you should be able to bring down your taxable income to 5.9 lacs and tax liability under old regime should be around ~32k.
Don't blindly trust your CA, ask around with other CAs and tax lawyers