Taxation and Record Keeping
Tax and records
This domain tests direct and indirect tax basics, GST mechanics, income tax, presumptive taxation and bookkeeping. GST is levied on supply of goods and services; a registered dealer collects output GST and claims input tax credit on eligible purchases. Net GST payable = output tax − eligible input tax credit. Income tax is on profit, not sales. Presumptive schemes such as section 44AD allow eligible small businesses to declare a deemed profit - at least 8% of turnover, or 6% for receipts through prescribed digital modes - subject to turnover limits. Records must include cash book, sales and purchase registers, stock records, wage records, asset register, invoices and bank statements.
Worked example
A registered trader sells goods for ₹1,00,000 plus GST at 18%. Output GST = ₹18,000; invoice total = ₹1,18,000. It has eligible input tax credit of ₹9,000. Net GST payable = ₹18,000 − ₹9,000 = ₹9,000. The ₹1,00,000 is sales, not profit; profit depends on cost of goods and expenses. If a buyer is unregistered and cannot claim credit, the tax still applies to the seller.
Traps that cost marks
Do not treat GST as a business cost for a registered dealer; it is a pass-through when credit is available. Do not claim input credit without a valid tax invoice and actual receipt. Do not confuse turnover with profit. Do not ignore cash sales or bank reconciliation. Do not assume presumptive taxation exempts you from maintaining records.