Answer

1. F

   Facts

   You can declare lower income, but then you must keep books and get a tax audit if total income exceeds the basic exemption limit, and file ITR-3. If you had opted for Sec 44AD and then opt out, you cannot return to it for the next five years.

2. P

   Provisions and law

   • Sec 44AD (now Sec 58)Presumptive business income at 6% of digital and 8% of other receipts for eligible businesses
   • Sec 44AB (now Sec 63)Tax audit, including when lower income than presumptive is declared
   • Sec 44AA (now Sec 62)Books of account
3. A

   Analysis

   On ₹1,20,00,000 turnover, 6% is ₹7,20,000; showing 3% means ₹3,60,000, saving tax on ₹3,60,000. Against that, you pay for books and audit, and lose the scheme for five years. If the low margin is a one-time event, the saving may not be worth it. Decide with your accountant before the due date.

4. C

   Conclusion

   1. 1Compare tax saved with the cost of books and audit
   2. 2Consider the five-year bar on re-entry
   3. 3If declaring lower, prepare books and get the audit
   4. 4File ITR-3 by the audit due date

The five-year bar in Sec 44AD(4) applies when you opt out after having opted in; check your past years before deciding.

General guidance from TaxSavvy’s library of money processes. Laws change; your Savvy confirms the answer on your exact case before anything is filed.