Businesses have been grown over the period of time due to general growth of the economy and varied other reasons. But at the same time various numbers of business and service providers, irrespective of their area of operations, earning substantial income are outside the tax net.
Presumptive income scheme has been introduced to bring such business & service providers within tax net and at the same time, there is lower compliance cost for such tax payer and lower administrative burden on revenue too.
From the A.Y. 2011-12 various schemes of presumptive taxation as applicable to small business has been consolidated under substituted section 44AD and whereas section 44AF (applicable to retail trade) has been deleted. Now scheme of presumptive taxation (other than presumptive taxation scheme applicable to non-resident) for small businesses is operated by two sections 44AD and 44AE.
Section 44AD
Applicable: Any business except plying, hiring or leasing goods carriages referred in S. 44AE and whose turnover is less than Rs. 100 lakhs during the previous year.
Eligible business:
Any business other than:
1. Profession
2. General commission agent/ commission based agency business (w.e.f, A.Y.2011-2012)
3. Business of playing, hiring or leasing goods carriages
4. Whose turnover/gross receipt exceeds Rs 60 lacs/1 crore (From A.Y. 2013-2014)
Applicable to class of taxpayer: Any resident individual, HUF, partnership firm excluding LLPs and has not claimed deductions u/ss 10A, 10AA,10B, 10BA, 80HH to 80RRB in the relevant assessment year.
Presumptive or estimated income: Sum equal to 8% of the total turnover or gross receipt of the assessee.
Higher or lower income: Assessee at his option can claim such higher/lower amount earned by him. Assessee can also claim to have earned income lower than specified amount, subject to fulfilment of conditions as to maintenance of books of account etc.
Maintenance of books of account: Unlike provision contained in Ss. 44AD(4) (as stood prior to its replacement) & 44AE(4), no specific provision exempting from maintenance of books of account and other documents as prescribed u/s 44AA, when income is offered on presumptive basis. However in case assessee claims that he has earned income lower than specified percentage and such income is more than maximum amount not chargeable to tax, Ss. 44AD(5) and 44AA(2)(iv), mandates him to maintain books of accounts and other documents as specified u/s 44AA, get them audited from the accountant and furnish report as required u/s 44AB.
Deduction from presumptive income: No deduction is allowable under provisions of sections 30 to 38. However in case of partnership firm remuneration to partner and interest on partner’s capital is allowable. For the computation of allowable partner’s remuneration, book profits would be deemed income less interest on capital. Further written down value of any depreciable asset of such business shall be calculated as if depreciation has been actually allowed.
Advance tax: Assessee offering income on presumptive basis provisions of Chapter XVII-C pertaining to Advance tax is not applicable to such assessee. Hence such assessee is not required to pay advance. However S. 44AE(4) may give rise to various peculiar unintended issues.
ASSESSEE CAN CLAIM LOWER INCOME?
Yes, assessee can claim lower income than 8% , but following provisions are applicable in that case
1. Aseesee is required to maintain books of accounts and the same will required to be audited under section 44AB.
2. The all provisions of advance tax payment than applicable in this case.
What is Total Turnover or Gross Receipts?
Total Turnover means the amount received/receivable from clients in respect of business transaction of the assessee for the relevant Previous Year.
Gross Receipts are the amount received from clients for the services provided or to be provided and does not include the value of material supplied by the client.
The Turnover or Gross Receipts should be inclusive of -
- Sales Tax, Excise duty, Service Tax and other such Levies and Duties,
- Sales of unusable empties and Packages,
- Service Charges charged for delivery, etc.
The provisions of this section, notwithstanding anything contained in the foregoing provisions, shall not apply to—
(i) a person carrying on profession as referred to in sub-section (1) of section 44AA;
(ii) a person earning income in the nature of commission or brokerage; or
(iii) a person carrying on any agency business.
Courtesy: ICAI Mat, Journals, VG Mat
Aryan Singhania {Pallav}
Pallav.singhania@icai.org
CAclubindia
