Hey everyone, this is my first year of filing tax returns as a lawyer (associate at a T2 law firm).
I understand lawyers being professional can avail "upto 50%" standard deductions as expenses without the need to have their accounts audited.
I just wanted to know if normally people do claim the entire 50% deduction or do you actually sit and calculate how much expenses have been made and then enter the exact amount? Alternatively, if someone is claiming less than 50% deduction, can be it a ballpark figure like 30%?
Unless you are actually capable of preparing your tax computation, and then populating the appropriate ITR accordingly, would strongly suggest that you approach a CA to do your return, without breaking your head over it....
Don't feel like paying 30% tax on whole income, so I claim the entire 50%. Upto 50L, you can too. Just note that ideally you should have spent that money so just spend that money or dispose it off in appropriate manner, you can always appoint numerous servants, and become creative.
50%, “or an amount higher that is claimed” is roughly the language of s.44ADA. This language might imply that you need to only claim what your actual expenses are (approximately). If you don’t spend the money then an Assessing Office will rightly claim that you don’t have 50% expenses, let alone 50% deemed business expenses (and he can prove it easily). He will then proceed to add it, and possibly charge you with misreporting (high penalty - 200% of tax liability I think). Though whether he can add that income (since it’s a deeming section) or not isn’t yet a settled issue, and I personally don’t think he can.
The 50% deduction will be available only if your bank account shows equal amount of expenses / payments. If there are no payments from your bank account, then the income tax department may dis-allow such 50% deduction. The idea behind this provision is to provide relaxation from keeping books of accounts and for not having to bifurcate between the expenses as deductible and non-deductive. Eg. if you earn 20 lakhs in a year but only spend 5 lakhs from that; you cannot take the shelter of this provision to claim direct 10 lakhs (50%) deduction. The department will allow only 5 lakhs deduction. Hope this helps and may be from next year expenses can be planned accordingly.
I filed for full 50% deduction though I had managed to save almost 70% of my income. My refund was processed without any problems.
Even if someone asks you why do you have more money in your bank account - you can always say you had availed certain services/bought certain things on credit/loan and haven't paid them off.
I don't understand the logic of why should one show 50% expenses through their bank ac?
Taking your example further - let's say I have 10 lakhs of 'cash in hand' available apart from the 20 lakhs that I have earned during the year.
Now I can say that even though I didn't make payments from my bank a/c and my bank a/c shows 20L balance - I can still say that I have made cash payments of 10L(since I had cash in hand with me) and hence my bank a/c balance is still 20L. Although I may be required to keep receipts as proof for these cash payments but Idk if the tax department will really be concerned over here?
Is it a problem if I claim 50% of incom e as expenses but have around 60-70% of income in savings/investments? Tax teams pls give some pro bono advice!
Yes, your bank account should show deduction of 50% amount which you have received as salary, for you to claim 50% deduction under this provision. The benefit of this provision is two folds: 1. There is no need for you to keep books of accounts. If your bank account shows deduction of 50% or more (towards any sort of expenses other than investment or loan to another person), the same will be available to you as deduction; and 2. The department cannot and will not claim that the deduction from the bank account is not legally deductible from the income for computing taxable income
Please also note that amount withdrawn from the bank account to undertake expenses in cash will also be counted towards fulfilling the above 50% criteria
I understand lawyers being professional can avail "upto 50%" standard deductions as expenses without the need to have their accounts audited.
I just wanted to know if normally people do claim the entire 50% deduction or do you actually sit and calculate how much expenses have been made and then enter the exact amount? Alternatively, if someone is claiming less than 50% deduction, can be it a ballpark figure like 30%?
Context: A0. I'm saving 80-90% retainer.
I believe this is an important part most of the lawyers here are overlooking
Hope this helps and may be from next year expenses can be planned accordingly.
Even if someone asks you why do you have more money in your bank account - you can always say you had availed certain services/bought certain things on credit/loan and haven't paid them off.
Taking your example further - let's say I have 10 lakhs of 'cash in hand' available apart from the 20 lakhs that I have earned during the year.
Now I can say that even though I didn't make payments from my bank a/c and my bank a/c shows 20L balance - I can still say that I have made cash payments of 10L(since I had cash in hand with me) and hence my bank a/c balance is still 20L. Although I may be required to keep receipts as proof for these cash payments but Idk if the tax department will really be concerned over here?
Anybody has any thoughts on this?
1. There is no need for you to keep books of accounts. If your bank account shows deduction of 50% or more (towards any sort of expenses other than investment or loan to another person), the same will be available to you as deduction; and
2. The department cannot and will not claim that the deduction from the bank account is not legally deductible from the income for computing taxable income
Please also note that amount withdrawn from the bank account to undertake expenses in cash will also be counted towards fulfilling the above 50% criteria