Presumptive taxation - optional or mandatory
This query is : Resolved
13 August 2011
Want to have a discussion on this:
Basically 44AD/AE are all option for the assessee to choose not mandatory right? Its choice of assessee to opt for presumptive scheme.
As per 44AD(5) it says above profit is tax limit & declare less than 8% 44AA 44AB applicable.
I see this statement is taken in many discussion like any assessee if run business and gets less than 8% profit need to get audited. so It goes like almost all cases will be tax audit.
Questions:
1) The presumptive taxation nature is changed it makes it mandatory & applicable to all.
2) Y the 44AB was not amended directly like profit below 60lacs and show profit below 8% then 44AB applicable rather amendment to 44AB say profit below prescribed rate of 44AD & AE then 44AB applicable?
Basically 44AD/AE are all option for the assessee to choose not mandatory right? Its choice of assessee to opt for presumptive scheme.
As per 44AD(5) it says above profit is tax limit & declare less than 8% 44AA 44AB applicable.
I see this statement is taken in many discussion like any assessee if run business and gets less than 8% profit need to get audited. so It goes like almost all cases will be tax audit.
Questions:
1) The presumptive taxation nature is changed it makes it mandatory & applicable to all.
2) Y the 44AB was not amended directly like profit below 60lacs and show profit below 8% then 44AB applicable rather amendment to 44AB say profit below prescribed rate of 44AD & AE then 44AB applicable?
13 August 2011
answer
1. yes it is a mandatory & applicable to all(Subject to Exception).
2.my friend if u read section 44AB clearly then this question will not arise. now point is that 44AD is not applicable to professional(gross receipt 10 lakh). SO THERE IS A RIGHT AMENDMENT BY CBDT.THERE IS NO REQUIREMENT TO AMEND SECTION 44AB.
i hope u understand it......
1. yes it is a mandatory & applicable to all(Subject to Exception).
2.my friend if u read section 44AB clearly then this question will not arise. now point is that 44AD is not applicable to professional(gross receipt 10 lakh). SO THERE IS A RIGHT AMENDMENT BY CBDT.THERE IS NO REQUIREMENT TO AMEND SECTION 44AB.
i hope u understand it......
14 August 2011
It seems that section 44AD is optional for
showing income higher than 8%.
It is a deeming section, and in income tax act deeming provisions are overcharged then the charging sections.
The philosophy adopted in section 44AD(5)
again relieves the assessee from showing 8% or more by adopting the yard stick of taxable total income.
How absurd the criteria for tax audit is?
Just see 2 examples.
Income from other sources 200000. Deduction U/s 80C 40000 LIP
Total Income 160000.
If this assessee is having turnover of Rs 100000/ then he has to show net profit of 8000.
In this case he has to get his accounts audited if he shows profit of 7000.
But he can show 7000 profit if he further invests 7100 in LIC.
So the tax audit has become a function of Total Income.
Mathematically, it can be represented as
Tax Audit --------> f(t)
Where t =Total Income.
.
I agree with your concerns.
showing income higher than 8%.
It is a deeming section, and in income tax act deeming provisions are overcharged then the charging sections.
The philosophy adopted in section 44AD(5)
again relieves the assessee from showing 8% or more by adopting the yard stick of taxable total income.
How absurd the criteria for tax audit is?
Just see 2 examples.
Income from other sources 200000. Deduction U/s 80C 40000 LIP
Total Income 160000.
If this assessee is having turnover of Rs 100000/ then he has to show net profit of 8000.
In this case he has to get his accounts audited if he shows profit of 7000.
But he can show 7000 profit if he further invests 7100 in LIC.
So the tax audit has become a function of Total Income.
Mathematically, it can be represented as
Tax Audit --------> f(t)
Where t =Total Income.
.
I agree with your concerns.
14 August 2011
Its total mockery on section 44AB bcas of 44AD covers all biz now. But wat i sense is whether it was intended that way as it is now taken as say all below 8% is tax audit.
ya i too understand showing less profit is some sort of supressing income but wat are about genuine cases? many poss that small biz when take loan ll have net profit adversly affected also when buy new asset.
But if biz suffer loss then it is pretty silent. say for eg for a partnership entity there is no slab for exemption so if they face loss it is also less than 8% of TO. in general loss is not income but from biz angle v cant ignore it.
I still cant come into terms to accept like show less than 8% it is tax audit. Was it the dept intention?
Even before amendment of 44AD it had this like show less than 8% get books audited. but now since it covers all small business it puts all genuine biz cases in inconvenience that get audited.
Then in common sense there is no use in having a section 44AB stating separate rules for a cap of 60lacs exemption which is getting overridden as all feel.
I feel 44AD is restricted to itself rather it overrides all other section.
please elaborate wat u ppl feel.
ya i too understand showing less profit is some sort of supressing income but wat are about genuine cases? many poss that small biz when take loan ll have net profit adversly affected also when buy new asset.
But if biz suffer loss then it is pretty silent. say for eg for a partnership entity there is no slab for exemption so if they face loss it is also less than 8% of TO. in general loss is not income but from biz angle v cant ignore it.
I still cant come into terms to accept like show less than 8% it is tax audit. Was it the dept intention?
Even before amendment of 44AD it had this like show less than 8% get books audited. but now since it covers all small business it puts all genuine biz cases in inconvenience that get audited.
Then in common sense there is no use in having a section 44AB stating separate rules for a cap of 60lacs exemption which is getting overridden as all feel.
I feel 44AD is restricted to itself rather it overrides all other section.
please elaborate wat u ppl feel.
14 August 2011
As I could understand the provisions of Section 44AD in simple terms these say as under-
1. Show Profit 8% or more, if you can't show @8% see your total income.
.
2. Total Income has to be calculated by including the business income on the basis of book results. For this purpose forget the requirement of 8%.
.
3. How Total Income is arrived ?
(We all know How to calculate it?
But to show the absurdity and inconsistency in the provisions of Section 44AD(5), it is hoped that readers will bear this exercise.)
After taking the Net Profit as per Books and including Income under All the heads of Income -
.
and after SETTING OFF OF THE BROUGHT FORWARD LOSSES ,
.
what ever Gross Total Income is arrived , we have to deduct All (including U/h C :Deductions in respect of certain incomes)Chapter VIA deductions from it.
.
4. If the Total Income so arrived is below taxable limit, there is no requirement so as to get accounts audited has been envisaged in s.s. 44AD(5).
"But if biz suffer loss then it is pretty silent. say for eg for a partnership entity there is no slab for exemption so if they face loss it is also less than 8% of TO. in general loss is not income but from biz angle v cant ignore it."
Here the author's above concern is well addressed and in such cases Tax Audit is not demanded.
.
1. Show Profit 8% or more, if you can't show @8% see your total income.
.
2. Total Income has to be calculated by including the business income on the basis of book results. For this purpose forget the requirement of 8%.
.
3. How Total Income is arrived ?
(We all know How to calculate it?
But to show the absurdity and inconsistency in the provisions of Section 44AD(5), it is hoped that readers will bear this exercise.)
After taking the Net Profit as per Books and including Income under All the heads of Income -
.
and after SETTING OFF OF THE BROUGHT FORWARD LOSSES ,
.
what ever Gross Total Income is arrived , we have to deduct All (including U/h C :Deductions in respect of certain incomes)Chapter VIA deductions from it.
.
4. If the Total Income so arrived is below taxable limit, there is no requirement so as to get accounts audited has been envisaged in s.s. 44AD(5).
"But if biz suffer loss then it is pretty silent. say for eg for a partnership entity there is no slab for exemption so if they face loss it is also less than 8% of TO. in general loss is not income but from biz angle v cant ignore it."
Here the author's above concern is well addressed and in such cases Tax Audit is not demanded.
.
14 August 2011
Bafna Sir,
i understand it all. i too agree. but just to elaborate y i started this post was to provide intrepretation of the provisions. such as
In what angle 44AD changes its presumptive taxation which was optional to assessee becomes applicable to all. Only bcas its applicable to all biz or by any other way.
in a simpler way how 44AD earlier bein option for assessee now became applicablity to all assessee bcas of 44AD(5)?
Though all may not opt for 44AD yet below wen biz has profit below 8% indirectly make them covered under 44AD and get under 44AB though they are not directly covered under 44AB as they r below 60lacs TO
i understand it all. i too agree. but just to elaborate y i started this post was to provide intrepretation of the provisions. such as
In what angle 44AD changes its presumptive taxation which was optional to assessee becomes applicable to all. Only bcas its applicable to all biz or by any other way.
in a simpler way how 44AD earlier bein option for assessee now became applicablity to all assessee bcas of 44AD(5)?
Though all may not opt for 44AD yet below wen biz has profit below 8% indirectly make them covered under 44AD and get under 44AB though they are not directly covered under 44AB as they r below 60lacs TO
15 August 2011
1. The intention of government is very clear. It has enhanced the tax limit to 1.60 lacs. Assessee having turnover <20.00 lac is still being treated as small assessee, whatever he is earning.
.
2. Above 20.00 lacs the harshness of provisions starts and it further increases
when turnover grows on increasing. In such a situation Tax Audit has been prescribed as a favourable measure not only to professionals for the assessee as well.
.
3. We have seen many incidences of suppression of turnover by the assessees to avoid tax audits. For having certain relaxation in tax payable, the assessee
has to get Audit Report. Once if he gets his accounts audited, then he will be free in doing his business turnover. I think this a positive measure for the assessee as well.
.
4. The law has to take certain steps towards compliance to which the assessee has to accept. Without making a legal compulsion nobody will prefer to go according to the scheme of law.
.
5. The argument stands good that 8% general rate is a very high or very low rate but the simplicity it offers, is a welcome step of the Govt.
.
6. Compulsory Audit or option to show 8%
profit, gives option to the assessee.
Either he has to pay the minimum taxes or he has to prove his business results. In my view, there is nothing wrong in the concept.
.
2. Above 20.00 lacs the harshness of provisions starts and it further increases
when turnover grows on increasing. In such a situation Tax Audit has been prescribed as a favourable measure not only to professionals for the assessee as well.
.
3. We have seen many incidences of suppression of turnover by the assessees to avoid tax audits. For having certain relaxation in tax payable, the assessee
has to get Audit Report. Once if he gets his accounts audited, then he will be free in doing his business turnover. I think this a positive measure for the assessee as well.
.
4. The law has to take certain steps towards compliance to which the assessee has to accept. Without making a legal compulsion nobody will prefer to go according to the scheme of law.
.
5. The argument stands good that 8% general rate is a very high or very low rate but the simplicity it offers, is a welcome step of the Govt.
.
6. Compulsory Audit or option to show 8%
profit, gives option to the assessee.
Either he has to pay the minimum taxes or he has to prove his business results. In my view, there is nothing wrong in the concept.
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