Taxation - DT Ch 05: Pgbp - Test 5: answer key

Question 1 · 2 marks · Taxation - DT Ch 05: Pgbp · medium

Scenario. Smt. Rhea Malhotra, a resident individual, operates a retail business dealing in electrical appliances under the name Malhotra Electricals. She has followed the mercantile system consistently and has been offering income under the presumptive taxation scheme for the tax years 2024-25 and 2025-26. Her turnover for Tax Year 2026-27 is ₹2,94,00,000. Of the total receipts, ₹11,00,000 was received in cash, ₹3,00,000 through a non-account-payee bank draft and the balance through account-payee cheques, NEFT and UPI. All electronic and account-payee receipts were received during the tax year or before the applicable return-filing due date. The non-account-payee bank draft was received on 18 February 2027. The business does not involve agency activities, commission, brokerage or any specified profession. Rhea has not claimed any deduction under Chapter VIII, Part C, for this tax year. Her books indicate actual business profit of ₹15,20,000, after considering all ordinary business expenses and depreciation. She also has other income of ₹4,00,000 from a taxable source. Rhea is considering whether to declare the profits under the presumptive scheme or instead maintain regular books and disclose the lower actual business profit. She believes that the higher turnover ceiling of ₹3 crore applies automatically to every trader and that any amount received by bank draft qualifies as a non-cash receipt. She also seeks clarity regarding the consequences of withdrawing from the presumptive scheme after having adopted it in two immediately preceding tax years. Assume all other eligibility conditions are satisfied and no other business is carried on by her.

Determine whether Smt. Rhea Malhotra satisfies the turnover and cash-receipt conditions for presumptive taxation under Section 44AD for Tax Year 2026-27. Her turnover is ₹2.94 crore, while aggregate cash receipts include both currency payments and a non-account-payee bank draft of ₹3,00,000. Consider the enhanced turnover ceiling and the statutory treatment of non-account-payee instruments.

1. Not eligible, since the turnover exceeds the ordinary ₹2 crore ceiling.
2. Eligible, since turnover is below ₹3 crore and cash receipts are within 5%. (correct answer)
3. Not eligible, because every bank draft is treated as a cash receipt.
4. Eligible only if her turnover is reduced by the non-account-payee draft.

Answer: B — Eligible, since turnover is below ₹3 crore and cash receipts are within 5%.

Explanation. Cash receipts = ₹11,00,000 + ₹3,00,000 = ₹14,00,000. Cash-receipt percentage = ₹14,00,000 ÷ ₹2,94,00,000 × 100 = 4.76%. Since cash receipts do not exceed 5%, the enhanced ₹3 crore turnover ceiling is available. Turnover of ₹2.94 crore is within that ceiling. The non-account-payee draft is treated as cash, but the aggregate cash percentage still satisfies the condition. Therefore, Rhea is eligible, subject to the remaining statutory conditions.

Where it goes wrong. Ignoring non-account-payee drafts while calculating cash receipts, or assuming that the ₹2 crore ceiling applies even when the enhanced threshold conditions are satisfied.

Authority. Section 44AD(1) of the Income-tax Act, 1961; Section 58(2), Table Sl. No. 1, of the Income-tax Act, 2025; Section 66(32) of the Income-tax Act, 2025

Question 2 · 2 marks · Taxation - DT Ch 05: Pgbp · hard

Assuming Rhea opts for presumptive taxation, calculate her minimum taxable business profit for Tax Year 2026-27. Of the total turnover of ₹2,94,00,000, ₹2,80,00,000 was received through specified banking or online modes, including qualifying receipts received before the return-filing due date. The remaining ₹14,00,000 was received in cash or by non-account-payee draft. Her actual profit as per books is ₹15,20,000.

1. ₹17,92,000, being the presumptive amount exceeding actual profit. (correct answer)
2. ₹16,80,000, being 6% of the entire turnover.
3. ₹23,52,000, being 8% of the entire turnover.
4. ₹15,20,000, being actual profit irrespective of the statutory minimum.

Answer: A — ₹17,92,000, being the presumptive amount exceeding actual profit.

Explanation. Digital receipts: ₹2,80,00,000 × 6% = ₹16,80,000. Remaining receipts: ₹14,00,000 × 8% = ₹1,12,000. Presumptive profit = ₹16,80,000 + ₹1,12,000 = ₹17,92,000. Actual profit is ₹15,20,000. Section 44AD requires the higher amount between the prescribed presumptive calculation and the profit claimed to have been actually earned. Hence, minimum taxable business profit is ₹17,92,000.

Where it goes wrong. Applying 6% to the entire turnover or selecting actual profit when it is lower than the prescribed presumptive amount.

Authority. Section 44AD(1) of the Income-tax Act, 1961; Section 58(2), Table Sl. No. 1, of the Income-tax Act, 2025

Question 3 · 2 marks · Taxation - DT Ch 05: Pgbp · hard

Rhea has opted for presumptive taxation in Tax Years 2024-25 and 2025-26. For Tax Year 2026-27, she proposes to declare her actual business profit of ₹15,20,000 instead of the presumptive profit of ₹17,92,000. Her total income, including other taxable income, exceeds the applicable basic exemption limit. What compliance consequence follows from this decision under the presumptive taxation provisions?

1. She may declare lower profit without maintaining books because the scheme is voluntary.
2. Only the difference of ₹2,72,000 is disallowed, without any audit requirement.
3. She must declare 8% of turnover and cannot ever withdraw from the scheme.
4. She must maintain prescribed books and obtain a tax audit because she claims lower profit. (correct answer)

Answer: D — She must maintain prescribed books and obtain a tax audit because she claims lower profit.

Explanation. The presumptive minimum is ₹17,92,000, whereas Rhea proposes to disclose ₹15,20,000. Shortfall = ₹17,92,000 − ₹15,20,000 = ₹2,72,000. Since she opted for the scheme in preceding tax years and now declares lower profits, the lock-in provisions are triggered. As her total income exceeds the basic exemption limit, she must maintain prescribed books and obtain a tax audit under the applicable provisions.

Where it goes wrong. Assuming that withdrawal is unrestricted merely because presumptive taxation is optional, and overlooking the preceding-year participation condition.

Authority. Section 44AD(4) and Section 44AD(5) of the Income-tax Act, 1961; Section 58(3) and Section 58(7) of the Income-tax Act, 2025; Section 62 and Section 63 (Audit of Accounts) of the Income-tax Act, 2025

Question 4 · 2 marks · Taxation - DT Ch 05: Pgbp · hard

Assume that Rhea declares profits below the presumptive amount in Tax Year 2026-27 after having adopted Section 44AD in the two preceding tax years. The current tax year is the third successive year in which she has been associated with the scheme. For how many subsequent tax years will she be prevented from claiming the presumptive benefit after the current-year violation?

1. Two tax years, namely 2027-28 and 2028-29.
2. Three tax years, namely 2027-28 to 2029-30.
3. Five tax years, namely 2027-28 to 2031-32. (correct answer)
4. Six tax years, namely 2027-28 to 2032-33.

Answer: C — Five tax years, namely 2027-28 to 2031-32.

Explanation. The lock-in provision applies when an eligible assessee adopts presumptive taxation and subsequently declares income below the prescribed amount during any of the five succeeding tax years. The violation occurs in Tax Year 2026-27. The five subsequent tax years are 2027-28, 2028-29, 2029-30, 2030-31 and 2031-32. Rhea cannot claim the presumptive benefit under this provision during these five tax years.

Where it goes wrong. Counting five years from the first year of opting into the scheme instead of counting them from the year in which the lower-income declaration occurs.

Authority. Section 44AD(4) of the Income-tax Act, 1961; Section 58(7) and Section 58(8) of the Income-tax Act, 2025

Question 5 · 2 marks · Taxation - DT Ch 05: Pgbp · medium

Scenario. Dr. Meera Nair, a resident individual medical practitioner, operates a specialised cardiology clinic in Bengaluru. Her gross professional receipts during Tax Year 2026-27 are ₹74,00,000. She received ₹3,50,000 in cash from patients and the remaining ₹70,50,000 through account-payee cheques, credit cards and UPI. All electronic receipts were received during the tax year or before the return-filing due date. Her books show a net professional profit of ₹34,00,000 after deducting staff salaries, clinic rent, medicines and other professional expenditure. She has not claimed any deduction under Chapter VIII, Part C. Separately, Meera is a partner in a resident engineering consultancy firm, Mehta and Rao Associates, which is not an LLP. The firm has gross professional receipts of ₹75,00,000, of which ₹3,75,000 was received in cash and the balance through specified banking or online modes. Its actual professional profit is ₹31,00,000. A separate medical consultancy business, Vikram Health Consultants LLP, is also resident in India and has gross receipts of ₹44,00,000, with cash receipts representing only 2% of the total. The LLP has a single designated partner who is a qualified medical professional. All three professional activities relate to professions covered by the specified-profession provisions. The parties are evaluating whether the presumptive professional-income scheme can be used and whether a tax audit is necessary when professional receipts exceed ₹50,00,000 but remain within the enhanced presumptive ceiling. Assume there are no other sources of professional receipts or statutory exclusions.

Compute the presumptive professional income of Dr. Meera Nair for Tax Year 2026-27. Her gross professional receipts are ₹74,00,000, of which ₹3,50,000 was received in cash. The remaining receipts were received through specified banking and online modes. Her actual professional profit according to her books is ₹34,00,000. All receipts satisfy the applicable timing condition, and the profession is covered by the specified-profession list.

1. ₹34,00,000, being the actual professional profit.
2. ₹37,00,000, being 50% of gross receipts. (correct answer)
3. ₹35,00,000, being the profit after excluding cash receipts.
4. ₹41,00,000, being the prescribed 50% plus cash receipts.

Answer: B — ₹37,00,000, being 50% of gross receipts.

Explanation. Cash-receipt ratio = ₹3,50,000 ÷ ₹74,00,000 × 100 = 4.73%. The receipts satisfy the 5% cash condition for the enhanced ₹75 lakh ceiling. Presumptive income = ₹74,00,000 × 50% = ₹37,00,000. Actual professional profit is ₹34,00,000. Under Section 44ADA, the higher amount is deemed professional income. Therefore, the taxable presumptive professional income is ₹37,00,000.

Where it goes wrong. Applying 50% only to the digitally collected receipts rather than to total gross professional receipts.

Authority. Section 44ADA(1) of the Income-tax Act, 1961; Section 58(2), Table Sl. No. 3, of the Income-tax Act, 2025

Question 6 · 2 marks · Taxation - DT Ch 05: Pgbp · medium

Vikram Health Consultants LLP is a resident LLP carrying on medical consultancy, a specified profession. Its gross professional receipts are ₹44,00,000 and its cash receipts are only 2% of total receipts. The LLP has a qualified medical practitioner as its designated partner. Can the LLP claim presumptive taxation under Section 44ADA merely because its profession and gross receipts satisfy the other prescribed conditions?

1. Yes, because every resident professional with receipts below ₹50 lakh qualifies.
2. Yes, because cash receipts are below 5% of gross professional receipts.
3. Yes, because a qualified designated partner makes the LLP eligible.
4. No, because an LLP is excluded from the eligible assessee category. (correct answer)

Answer: D — No, because an LLP is excluded from the eligible assessee category.

Explanation. Section 44ADA applies to a resident individual or a resident partnership firm other than an LLP, engaged in a specified profession. Although Vikram Health Consultants LLP has receipts of ₹44,00,000 and cash receipts of only 2%, it does not meet the eligible-assessee condition. A designated partner's professional qualification does not change the legal constitution of the assessee. Hence, the presumptive scheme is unavailable to this LLP.

Where it goes wrong. Treating an LLP as a partnership firm for eligibility merely because it has partners and carries on a specified profession.

Authority. Section 44ADA(1) of the Income-tax Act, 1961; Section 58(2), Table Sl. No. 3, of the Income-tax Act, 2025

Question 7 · 2 marks · Taxation - DT Ch 05: Pgbp · hard

Mehta and Rao Associates, a resident partnership firm but not an LLP, provides architectural services. Its gross receipts are ₹75,00,000, of which ₹3,75,000 is received in cash. The remaining ₹71,25,000 is received through qualifying banking or online modes. The actual profit disclosed in its books is ₹31,00,000. Determine whether the firm qualifies for Section 44ADA and the corresponding presumptive income.

1. Eligible; presumptive professional income is ₹37,50,000. (correct answer)
2. Ineligible; receipts must be below ₹75 lakh rather than equal to it.
3. Eligible; presumptive professional income is ₹31,00,000.
4. Ineligible; a partnership firm cannot claim professional presumptive taxation.

Answer: A — Eligible; presumptive professional income is ₹37,50,000.

Explanation. Cash receipts = ₹3,75,000 ÷ ₹75,00,000 × 100 = 5%. The enhanced ₹75 lakh limit is available because cash receipts do not exceed 5%. A resident partnership firm other than an LLP is an eligible assessee. Deemed profit = ₹75,00,000 × 50% = ₹37,50,000. Since actual profit of ₹31,00,000 is lower, presumptive income of ₹37,50,000 applies.

Where it goes wrong. Interpreting the receipt ceiling as strictly below ₹75 lakh or treating the 5% cash condition as requiring cash receipts to be nil.

Authority. Section 44ADA(1) of the Income-tax Act, 1961; Section 58(2), Table Sl. No. 3, of the Income-tax Act, 2025

Question 8 · 2 marks · Taxation - DT Ch 05: Pgbp · medium

Dr. Meera's professional receipts of ₹74,00,000 exceed the ordinary tax-audit threshold of ₹50,00,000 for professionals. Assume she declares professional income of ₹37,00,000 under Section 44ADA, being the prescribed presumptive amount, and satisfies every eligibility condition. Does she require a separate tax audit under Section 44AB solely because her gross professional receipts exceed ₹50,00,000?

1. Yes, because all professionals with receipts above ₹50 lakh require a tax audit.
2. Yes, because the presumptive income exceeds the basic exemption limit.
3. No, because she declares income in accordance with the applicable presumptive scheme. (correct answer)
4. No, because the ordinary professional tax-audit threshold is ₹75 lakh.

Answer: C — No, because she declares income in accordance with the applicable presumptive scheme.

Explanation. Dr. Meera's receipts are ₹74,00,000, which exceed the ordinary professional audit threshold of ₹50,00,000. However, she is eligible under Section 44ADA and declares the prescribed income of ₹37,00,000. The tax-audit provisions do not require a separate tax audit where the assessee declares income according to the applicable presumptive provisions. Therefore, no tax audit is required solely on account of her gross receipts.

Where it goes wrong. Applying the ordinary professional tax-audit threshold without considering the exception for an assessee correctly declaring income under a presumptive scheme.

Authority. Section 44AB of the Income-tax Act, 1961; Section 44ADA of the Income-tax Act, 1961; Section 63 (Audit of Accounts) of the Income-tax Act, 2025

Question 9 · 2 marks · Taxation - DT Ch 05: Pgbp · hard

Scenario. Mr. Sukhbir Singh, a resident individual, carries on the business of plying goods carriages and maintains a fleet used for transporting industrial goods. Throughout Tax Year 2026-27, he owns two heavy goods vehicles, each having a gross vehicle weight of 15,000 kg. He acquired another heavy goods vehicle weighing 16,000 kg on 15 August 2026 and retained it until 31 March 2027. Three other goods carriages, each having a gross vehicle weight of 11,000 kg, remained in his possession throughout the tax year. One of these three vehicles was acquired through a hire-purchase arrangement, and instalments were still outstanding at 31 March 2027. A seventh vehicle having a gross vehicle weight of precisely 12,000 kg was acquired on 29 March 2027. No other vehicle was owned or possessed by him during the year. The total actual business profit from the transport undertaking, as computed from properly maintained books, is ₹7,20,000. Sukhbir also earns ₹5,00,000 from another taxable source. He is considering declaring the lower actual transport profit rather than the presumptive figure. He believes that a vehicle weighing 12,000 kg qualifies as a heavy goods vehicle and that a vehicle under hire purchase should not be considered owned until the final instalment is paid. He also wishes to know whether the period of ownership is calculated proportionately by days or by counting every month or part of a month. Assume all seven vehicles were used for the transportation business and all statutory conditions other than the issues described are satisfied.

Calculate Sukhbir Singh's presumptive income from goods carriages for Tax Year 2026-27. Two heavy goods vehicles of 15,000 kg each were owned throughout the year. A third heavy vehicle weighing 16,000 kg was acquired on 15 August 2026. Three non-heavy vehicles of 11,000 kg each were owned throughout the year. A further vehicle of 12,000 kg was acquired on 29 March 2027. Apply the prescribed monthly rates and count a month or part of a month as a full month.

1. ₹7,20,000
2. ₹7,65,500 (correct answer)
3. ₹8,25,000
4. ₹7,50,000

Answer: B — ₹7,65,500

Explanation. Two heavy vehicles: 2 × 15 tonnes × ₹1,000 × 12 = ₹3,60,000. Third heavy vehicle: 16 × ₹1,000 × 8 months = ₹1,28,000. Three non-heavy vehicles: 3 × ₹7,500 × 12 = ₹2,70,000. The 12,000 kg vehicle is non-heavy and counts for March: ₹7,500. Total = ₹3,60,000 + ₹1,28,000 + ₹2,70,000 + ₹7,500 = ₹7,65,500.

Where it goes wrong. Classifying the 12,000 kg vehicle as heavy or calculating depreciation-type daily ownership instead of counting every month or part of a month.

Authority. Section 44AE(2) of the Income-tax Act, 1961; Section 58(2), Table Sl. No. 2, of the Income-tax Act, 2025

Question 10 · 2 marks · Taxation - DT Ch 05: Pgbp · medium

Sukhbir's seventh vehicle is held under a hire-purchase arrangement. He has possession of the vehicle and instalments remain outstanding at 31 March 2027. All other vehicles are held directly by him. What is the consequence of this arrangement while determining eligibility under Section 44AE, which requires ownership of not more than ten goods carriages at any time during the tax year?

1. The vehicle is excluded until the final hire-purchase instalment is paid.
2. The vehicle is excluded if the registration certificate remains with the financier.
3. The vehicle is counted only after 180 days of business use.
4. The vehicle is treated as owned because possession and outstanding instalments satisfy the statutory rule. (correct answer)

Answer: D — The vehicle is treated as owned because possession and outstanding instalments satisfy the statutory rule.

Explanation. For Section 44AE, an assessee in possession of a goods carriage acquired under hire purchase or instalments, where any amount remains payable, is deemed to be its owner. Sukhbir's vehicle therefore counts as owned even though instalments remain outstanding. The fleet comprises seven goods carriages, including this vehicle. Since the maximum number held is seven, it remains within the ceiling of ten goods carriages.

Where it goes wrong. Counting only vehicles for which legal title has completely passed and ignoring the statutory deemed-ownership provision.

Authority. Section 44AE(1) of the Income-tax Act, 1961; Section 58(2), Table Sl. No. 2, of the Income-tax Act, 2025

Question 11 · 2 marks · Taxation - DT Ch 05: Pgbp · hard

A transporter acquires a goods carriage with gross vehicle weight of 12,000 kg on 29 March 2027. The vehicle is owned for only three days before the end of the tax year. Determine the presumptive monthly amount applicable to this vehicle under Section 44AE, assuming the transporter is otherwise eligible and the vehicle is used for plying goods.

1. ₹12,000, because every tonne is charged at ₹1,000.
2. ₹4,000, based on three days of ownership.
3. ₹7,500, because 12,000 kg is not more than the heavy-vehicle threshold. (correct answer)
4. Nil, because the vehicle was held for fewer than 30 days.

Answer: C — ₹7,500, because 12,000 kg is not more than the heavy-vehicle threshold.

Explanation. A heavy goods vehicle must have gross vehicle weight exceeding 12,000 kg. A vehicle weighing exactly 12,000 kg is therefore classified as a goods carriage other than a heavy goods vehicle. The presumptive amount is ₹7,500 per month or part of a month. Since it was acquired on 29 March, March is counted as one month. Thus, the presumptive amount is ₹7,500.

Where it goes wrong. Treating a vehicle weighing precisely 12,000 kg as heavy or allowing a proportionate daily amount for a part-month ownership.

Authority. Section 44AE(2) of the Income-tax Act, 1961; Section 58(2), Table Sl. No. 2, of the Income-tax Act, 2025

Question 12 · 2 marks · Taxation - DT Ch 05: Pgbp · hard

Sukhbir's actual business profit from plying goods carriages is ₹7,20,000, whereas the prescribed presumptive amount works out to ₹7,65,500. His other taxable income ensures that his total income exceeds the applicable basic exemption limit. He proposes to disclose only the actual transport profit. What compliance requirement follows if he claims income below the amount deemed under Section 44AE?

1. He must maintain prescribed books and obtain a tax audit under the relevant provisions. (correct answer)
2. He can disclose actual profit without books because goods carriage income is exempt from audit.
3. He must pay tax on ₹7,65,500 but is not required to maintain books.
4. He can disclose actual profit if cash receipts from transport are below 5%.

Answer: A — He must maintain prescribed books and obtain a tax audit under the relevant provisions.

Explanation. Presumptive income is ₹7,65,500, while actual income is ₹7,20,000. Difference = ₹7,65,500 − ₹7,20,000 = ₹45,500. Where an assessee under Section 44AE claims lower profit than the prescribed amount, the statutory books and tax-audit requirements apply. Since Sukhbir's actual claim is lower, he cannot simply substitute book profit without meeting the prescribed compliance requirements.

Where it goes wrong. Assuming that the option to declare lower transport income is unconditional and does not trigger books and tax-audit requirements.

Authority. Section 44AE(5) of the Income-tax Act, 1961; Section 62 and Section 63 (Audit of Accounts) of the Income-tax Act, 2025

Question 13 · 2 marks · Taxation - DT Ch 05: Pgbp · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. Kunal operates a resident retail business with turnover of ₹1,95,00,000 during Tax Year 2026-27. Cash receipts are ₹15,60,000 and the balance is received through specified banking or online modes during the tax year or before the return-filing due date. His actual profit is ₹11,50,000. All other conditions for Section 44AD are satisfied. Calculate the minimum presumptive business income, keeping in mind that the ordinary turnover ceiling does not require the cash-receipt percentage condition.

1. ₹11,50,000
2. ₹12,01,200 (correct answer)
3. ₹15,60,000
4. ₹13,65,000

Answer: B — ₹12,01,200

Explanation. Digital receipts = ₹1,95,00,000 − ₹15,60,000 = ₹1,79,40,000. Profit on digital receipts = 6% × ₹1,79,40,000 = ₹10,76,400. Profit on cash receipts = 8% × ₹15,60,000 = ₹1,24,800. Total presumptive amount = ₹10,76,400 + ₹1,24,800 = ₹12,01,200. This exceeds actual profit of ₹11,50,000, so ₹12,01,200 is taxable.

Where it goes wrong. Assuming the 5% cash-receipt test is mandatory for every turnover bracket rather than only for the enhanced ₹3 crore ceiling.

Authority. Section 44AD(1) of the Income-tax Act, 1961; Section 58(2), Table Sl. No. 1, of the Income-tax Act, 2025

Question 14 · 2 marks · Taxation - DT Ch 05: Pgbp · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A resident individual carrying on an eligible trading business reports turnover of ₹2,80,00,000 during Tax Year 2026-27. Cash receipts, including receipts through non-account-payee instruments, amount to ₹15,40,000. The remaining turnover is received through prescribed banking or online modes. The individual satisfies the other conditions of Section 44AD. Determine whether the individual can use the enhanced ₹3 crore ceiling.

1. Yes, because total turnover is below ₹3 crore.
2. Yes, because the digital receipts are substantially higher than cash receipts.
3. No, because cash receipts exceed 5% of total turnover. (correct answer)
4. No, because turnover has crossed the ordinary ₹2 crore ceiling.

Answer: C — No, because cash receipts exceed 5% of total turnover.

Explanation. Cash receipt percentage = ₹15,40,000 ÷ ₹2,80,00,000 × 100 = 5.50%. The enhanced turnover limit of ₹3 crore is available only where cash receipts do not exceed 5% of total turnover or gross receipts. Since 5.50% exceeds the prescribed ceiling, the enhanced limit is unavailable. Turnover also exceeds ₹2 crore, the ordinary ceiling. Consequently, the assessee is not eligible under Section 44AD.

Where it goes wrong. Checking only the turnover ceiling and overlooking that the enhanced threshold depends on cash receipts remaining within 5%.

Authority. Section 44AD(1) of the Income-tax Act, 1961; Section 58(2), Table Sl. No. 1, of the Income-tax Act, 2025

Question 15 · 2 marks · Taxation - DT Ch 05: Pgbp · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. Arvind, a resident individual, carries on a retail business with turnover of ₹1,20,00,000. The business also earns brokerage income of ₹2,50,000 during Tax Year 2026-27. The cash-receipt ratio is only 3%, and all other conditions relating to turnover and banking receipts are satisfied. Can Arvind claim presumptive taxation under Section 44AD for his retail business?

1. No, because the eligible assessee must not earn commission or brokerage income. (correct answer)
2. Yes, because the brokerage income is less than the ordinary turnover ceiling.
3. Yes, because only cash receipts above 5% disqualify the assessee.
4. No, because a resident individual is not an eligible assessee.

Answer: A — No, because the eligible assessee must not earn commission or brokerage income.

Explanation. The eligible-assessee conditions exclude a person who earns income in the nature of commission or brokerage or carries on agency business. Arvind earns brokerage income of ₹2,50,000. Although his retail turnover of ₹1,20,00,000 is below ₹2 crore and cash receipts are only 3%, the specific exclusion prevents him from claiming Section 44AD. His business income must therefore be computed under the regular provisions.

Where it goes wrong. Assuming that the commission or brokerage exclusion applies only when such receipts form the principal business or exceed a particular percentage of turnover.

Authority. Section 44AD(1) and Section 44AD(6) of the Income-tax Act, 1961; Section 58(2), Table Sl. No. 1, of the Income-tax Act, 2025

Question 16 · 2 marks · Taxation - DT Ch 05: Pgbp · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. Devansh opted for Section 44AD for Tax Year 2024-25. During Tax Year 2027-28, which falls within the five succeeding tax years, he declares actual profit lower than the statutory presumptive amount. He had also followed the scheme in the intervening tax years. Determine the period during which he will be barred from claiming presumptive taxation after this violation.

1. Five years from Tax Year 2024-25 itself.
2. Three tax years beginning from Tax Year 2028-29.
3. Five years beginning from Tax Year 2029-30.
4. Five years beginning from Tax Year 2028-29 and ending in 2032-33. (correct answer)

Answer: D — Five years beginning from Tax Year 2028-29 and ending in 2032-33.

Explanation. The five-year restriction is triggered when an assessee who adopted the scheme declares lower profit during one of the five succeeding tax years. Here, the violation occurs in Tax Year 2027-28. The restriction therefore applies for the next five tax years: 2028-29, 2029-30, 2030-31, 2031-32 and 2032-33. If the total income exceeds the basic exemption limit, the assessee must also maintain prescribed books and obtain a tax audit.

Where it goes wrong. Starting the exclusion period from the original year of opting instead of from the year of the lower-income violation.

Authority. Section 44AD(4) and Section 44AD(5) of the Income-tax Act, 1961; Section 58(7) and Section 58(8) of the Income-tax Act, 2025

Question 17 · 2 marks · Taxation - DT Ch 05: Pgbp · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A resident individual carrying on architectural consultancy earns professional receipts of ₹52,00,000 during Tax Year 2026-27. Cash receipts are ₹3,12,000 and the remaining amount is received electronically. The individual claims that the enhanced ₹75 lakh limit under Section 44ADA applies because total receipts are below ₹75 lakh. Determine the correct treatment, including the consequence for tax-audit requirements if the professional income is computed under regular provisions.

1. Eligible under Section 44ADA because receipts are below ₹75 lakh.
2. Ineligible under Section 44ADA; tax audit applies if regular professional receipts exceed ₹50 lakh. (correct answer)
3. Eligible under Section 44ADA because cash receipts are below ₹10 lakh.
4. Ineligible only because an individual cannot use the professional presumptive scheme.

Answer: B — Ineligible under Section 44ADA; tax audit applies if regular professional receipts exceed ₹50 lakh.

Explanation. Cash receipts percentage = ₹3,12,000 ÷ ₹52,00,000 × 100 = 6%. The enhanced ₹75 lakh ceiling requires cash receipts not to exceed 5%. Since the cash ratio is 6%, the enhanced limit is unavailable. The ordinary professional presumptive limit is ₹50 lakh, which is also exceeded. Hence, Section 44ADA cannot be used. Professional receipts of ₹52,00,000 exceed the ordinary ₹50 lakh tax-audit threshold under Section 44AB(b).

Where it goes wrong. Looking only at the ₹75 lakh gross-receipt ceiling without testing the cash-receipt percentage condition.

Authority. Section 44ADA(1) of the Income-tax Act, 1961; Section 44AB(b) of the Income-tax Act, 1961; Section 58(2), Table Sl. No. 3, and Section 63 (Audit of Accounts) of the Income-tax Act, 2025

Question 18 · 2 marks · Taxation - DT Ch 05: Pgbp · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A resident partnership firm, not being an LLP, provides technical consultancy services covered under the specified-profession provisions. Its gross professional receipts are ₹48,00,000. The actual profit according to books is ₹26,00,000. Assume all receipts satisfy the conditions for presumptive taxation under Section 44ADA. What is the professional income chargeable under the presumptive provisions?

1. ₹24,00,000, being 50% of gross professional receipts.
2. ₹22,00,000, being 50% after deducting a standard expense.
3. ₹26,00,000, being the higher amount of actual profit and presumptive profit. (correct answer)
4. ₹48,00,000, being the entire gross professional receipts.

Answer: C — ₹26,00,000, being the higher amount of actual profit and presumptive profit.

Explanation. Presumptive professional profit = ₹48,00,000 × 50% = ₹24,00,000. Actual profit claimed by the firm is ₹26,00,000. Under the presumptive provision, the amount chargeable is the higher of the prescribed 50% of gross receipts or actual profit claimed to have been earned. Therefore, the professional income chargeable is ₹26,00,000, assuming all other conditions are met.

Where it goes wrong. Assuming the 50% amount is always the final taxable income, even where actual profit claimed by the assessee is higher.

Authority. Section 44ADA(1) of the Income-tax Act, 1961; Section 58(2), Table Sl. No. 3, of the Income-tax Act, 2025

Question 19 · 2 marks · Taxation - DT Ch 05: Pgbp · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A transporter owns one heavy goods vehicle with gross vehicle weight of 12,500 kg throughout Tax Year 2026-27 and another vehicle with gross vehicle weight of 12,000 kg throughout the same year. He owns no other goods carriages and reports actual transport income of ₹2,10,000. Calculate the minimum presumptive income under Section 44AE. Assume both vehicles are owned for all twelve months and the actual income figure is lower than the statutory amount.

1. ₹2,40,000 (correct answer)
2. ₹1,80,000
3. ₹2,70,000
4. ₹2,10,000

Answer: A — ₹2,40,000

Explanation. The 12,500 kg vehicle is heavy because its gross vehicle weight exceeds 12,000 kg. Presumptive income = 12.5 tonnes × ₹1,000 × 12 = ₹1,50,000. The 12,000 kg vehicle is non-heavy: ₹7,500 × 12 = ₹90,000. Total presumptive income = ₹1,50,000 + ₹90,000 = ₹2,40,000. This exceeds actual profit of ₹2,10,000, so the presumptive amount applies.

Where it goes wrong. Treating the vehicle weighing 12,000 kg as heavy or applying the ₹1,000 per tonne rate to both vehicles.

Authority. Section 44AE(2) of the Income-tax Act, 1961; Section 58(2), Table Sl. No. 2, of the Income-tax Act, 2025

Question 20 · 2 marks · Taxation - DT Ch 05: Pgbp · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A transport operator acquires a heavy goods vehicle with gross vehicle weight of 18,000 kg on 30 September 2026 and retains it until 31 March 2027. He also acquires a non-heavy goods carriage on 12 January 2027 and retains it until the end of the tax year. No other goods carriages are owned. Calculate the aggregate presumptive amount for these two vehicles, assuming actual business profits are lower.

1. ₹1,26,000
2. ₹1,35,000
3. ₹1,48,000
4. ₹1,48,500 (correct answer)

Answer: D — ₹1,48,500

Explanation. The heavy vehicle is owned from September through March, covering seven months including both part-months. Its income is 18 × ₹1,000 × 7 = ₹1,26,000. The non-heavy vehicle is owned during January, February and March, covering three months: 3 × ₹7,500 = ₹22,500. Total presumptive income = ₹1,26,000 + ₹22,500 = ₹1,48,500.

Where it goes wrong. Counting only full months of ownership or excluding the acquisition month when the vehicle is owned for part of that month.

Authority. Section 44AE(2) of the Income-tax Act, 1961; Section 58(2), Table Sl. No. 2, of the Income-tax Act, 2025

Question 21 · 2 marks · Taxation - DT Ch 05: Pgbp · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A trading concern has turnover of ₹9,80,00,000 during Tax Year 2026-27. Its aggregate cash receipts, including non-account-payee cheques, are 4.8% of total receipts. However, aggregate cash payments, including non-account-payee drafts, are 5.2% of total payments. It does not declare profits under a presumptive scheme. Determine whether the enhanced tax-audit turnover threshold of ₹10 crore is available.

1. No, because cash receipts and cash payments must both remain within 4%.
2. Yes, because the turnover is below ₹10 crore and cash receipts are within 5%. (correct answer)
3. Yes, because the cash-payment percentage is irrelevant for tax audit.
4. No, because failure of either 5% condition makes the enhanced threshold unavailable.

Answer: B — Yes, because the turnover is below ₹10 crore and cash receipts are within 5%.

Explanation. For the enhanced tax-audit threshold, cash receipts must not exceed 5% and cash payments must not exceed 5% of their respective aggregates. Cash receipts are 4.8%, but cash payments are 5.2%. Since both conditions are cumulative, the enhanced ₹10 crore threshold is unavailable. Turnover of ₹9.80 crore exceeds the ordinary ₹1 crore threshold. Therefore, the concern is required to obtain a tax audit.

Where it goes wrong. Treating the two cash-percentage conditions as alternatives instead of cumulative conditions for the enhanced tax-audit ceiling.

Authority. Section 44AB(a) of the Income-tax Act, 1961; Section 44AB proviso relating to cash receipts and payments; Section 63(1)(b) of the Income-tax Act, 2025

Question 22 · 2 marks · Taxation - DT Ch 05: Pgbp · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A trading business reports turnover of ₹10,00,00,000 for Tax Year 2026-27. Cash receipts are exactly 5% of aggregate receipts and cash payments are also exactly 5% of aggregate payments. The business does not use a presumptive taxation scheme. Determine whether tax audit is compulsory under Section 44AB, considering the wording of the enhanced ₹10 crore turnover threshold and both cash-percentage conditions.

1. Yes, because turnover of ₹10 crore automatically attracts tax audit.
2. Yes, because cash receipts must be strictly below 5%.
3. No, because turnover does not exceed ₹10 crore and both cash percentages satisfy the condition. (correct answer)
4. No, because tax audit never applies where some receipts are digital.

Answer: C — No, because turnover does not exceed ₹10 crore and both cash percentages satisfy the condition.

Explanation. The enhanced threshold applies where turnover does not exceed ₹10 crore and both cash receipts and cash payments do not exceed 5% of their respective totals. Turnover is exactly ₹10 crore, not more than ₹10 crore. Both cash percentages are exactly 5%, satisfying the inclusive ceiling. Accordingly, the enhanced threshold applies and the business is not required to obtain a tax audit under the stated facts.

Where it goes wrong. Reading 'does not exceed 5%' as strictly below 5%, or treating turnover equal to ₹10 crore as exceeding the threshold.

Authority. Section 44AB(a) of the Income-tax Act, 1961; Section 63(1)(b) of the Income-tax Act, 2025

Question 23 · 2 marks · Taxation - DT Ch 05: Pgbp · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A resident medical practitioner has gross professional receipts of ₹52,00,000 during Tax Year 2026-27, including cash receipts of ₹2,70,400. The remaining receipts are received through specified banking or online modes. The practitioner does not declare professional income under Section 44ADA and instead computes income under the regular provisions. Determine whether a tax audit is required under Section 44AB.

1. Yes, because professional receipts exceed ₹50 lakh and the enhanced presumptive condition fails. (correct answer)
2. No, because cash receipts are below ₹3 lakh.
3. No, because the professional receipts are below ₹75 lakh.
4. Yes, only if actual professional profit exceeds ₹50 lakh.

Answer: A — Yes, because professional receipts exceed ₹50 lakh and the enhanced presumptive condition fails.

Explanation. Cash-receipt percentage = ₹2,70,400 ÷ ₹52,00,000 × 100 = 5.20%. The enhanced professional presumptive ceiling of ₹75 lakh requires cash receipts not to exceed 5%. As receipts exceed ₹50 lakh and the professional does not declare income under Section 44ADA, the ordinary tax-audit threshold applies. Thus, a tax audit is required irrespective of the actual profit percentage.

Where it goes wrong. Using the ₹75 lakh presumptive ceiling as the tax-audit threshold, without testing the 5% cash condition and the scheme actually selected.

Authority. Section 44AB(b) of the Income-tax Act, 1961; Section 44ADA of the Income-tax Act, 1961; Section 63 (Audit of Accounts) of the Income-tax Act, 2025

Question 24 · 2 marks · Taxation - DT Ch 05: Pgbp · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Nandini Real Estates Pvt Ltd carries on a business for which a tax audit is compulsory under Section 44AB. Assume that its return-filing due date is 31 October 2027 in respect of Tax Year 2026-27. Under the rule governing the specified date for furnishing the tax-audit report, by what date must the company complete the prescribed tax-audit reporting formalities?

1. 31 July 2027
2. 31 August 2027
3. 31 October 2027
4. 30 September 2027 (correct answer)

Answer: D — 30 September 2027

Explanation. The specified date for the tax-audit report is one month before the due date for furnishing the return of income. Assumed return due date = 31 October 2027. One month before that date is 30 September 2027. Accordingly, the reporting formalities must be completed by 30 September 2027. The return-filing date and the specified date for the tax-audit report are separate statutory deadlines.

Where it goes wrong. Confusing the return-filing due date with the specified date for the tax-audit report.

Authority. Section 44AB of the Income-tax Act, 1961; Rule 6G of the Income-tax Rules, 1962; Section 63 and Rule 47 of the Income-tax Rules, 2026

Question 25 · 2 marks · Taxation - DT Ch 05: Pgbp · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A business entity was required to obtain a tax audit and furnish its report for Tax Year 2026-27 by 30 September 2027. It failed to do so, and the default continued for 45 days after the specified date. Under the fee provisions set out in the supplied ICAI study material, determine the fee applicable where the delay continues beyond one month. Ignore any separate reasonable-cause relief or other proceedings.

1. ₹25,000
2. ₹75,000
3. ₹1,50,000 (correct answer)
4. ₹1,00,000

Answer: C — ₹1,50,000

Explanation. The supplied ICAI material specifies a fee of ₹75,000 for delay up to one month and ₹1,50,000 for delay beyond one month under Section 428(c). Here, the default continues for 45 days, exceeding one month. Therefore, the applicable fee is ₹1,50,000. The calculation is not based on a proportionate daily amount because the prescribed fee applies according to the duration category of the delay.

Where it goes wrong. Applying the fee for delay up to one month even though the failure has continued beyond that period.

Authority. Section 44AB of the Income-tax Act, 1961; Section 271B of the Income-tax Act, 1961; Section 63 and Section 428(c) of the Income-tax Act, 2025