Presumptive Taxation Scheme in a new Avatar.pptx

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Presumptive Taxation Scheme in a new Avatar
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• I. Amendments to section 44AD
• The existing provisions contained in the said
  section (applicable to individual, HUF or
  partnership firm) provides that notwithstanding
  anything to the contrary contained in section 28
  to 43C, in the case of an assessee engaged in an
  eligible business having total turnover or gross
  receipts not exceeding one crore rupees, a sum
  equal to 8 of the total turnover or gross
  receipts, or, as the case may be, a sum higher
  than the aforesaid sum declared by the assessee
  in his return of income, shall be deemed to be
  the profits and gains of such business chargeable
  to tax under the head "Profit and gains of
  business or profession".
• Further, under the existing scheme as per proviso
  to section 44AD(2), where the eligible assessee
  is a firm, the salary and interest paid to its
  partners shall be deducted from the income
  computed under sub-section (1) of section 44AD
  subject to the conditions and limits specified in
  section 40(b).
•  

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• Proposal
• Clause 26of the Bill seeks to amend section 44AD
  of the Income-tax Act relating to special
  provision for computing profits and gains of
  business on presumptive basis.
• The proposed section 44AD seeks to provide for
  estimating income of eligible assessee who is
  engaged in an eligible business, at a sum equal
  to 8 of the total turnover or gross receipts,
  or, as the case may be, a sum higher than the
  aforesaid sum earned by the assessee whose total
  gross receipts does not exceed two crore rupees.
• It is further proposed to omit the proviso to
  section 44AD(2) and accordingly, in case of
  eligible assessee being a firm, the salary and
  interest paid to its partners shall not be
  allowed to be deducted from the income computed
  under sub-section (1) of section 44AD.
• Further, it is proposed to substitute
  sub-sections (4) and (5) of the aforesaid section
  to provide that where an assessee declares profit
  for any previous year in accordance with the
  provisions of this section and he declares
  profit for any of the five assessment years
  relevant to the previous year succeeding such
  previous yearnot in accordance with the
  provisions of sub-section (1), he shall not be
  eligible to claim the benefit of the provisions
  of this section for five assessment years
  subsequent to the assessment year relevant to the
  previous year in which the profit has not been
  declared in accordance with the provisions of
  sub-section (1).
• It is further proposed by way of sub-section (5)
  that, an assessee to whom the provisions of
  sub-section (4) are applicable and whose total
  income exceeds the maximum amount which is not
  chargeable to income-tax, shall be required to
  keep and maintain such books of account and other
  documents as required under sub-section (2) of
  section 44AA and get them audited and furnish a
  report of such audit as required under section
  44AB.
•  All these amendments will take effect from 1st
  April, 2017 and will, accordingly, apply in
  relation to the assessment year 2017- 2018 and
  subsequent years.

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Example Suppose an eligible assessee declares
his income under Section 44AD(1) for A.Y.
2017-18. Then as per new Section 44AD(4), he has
to file returns for next 5 assessment years i.e.
from A.Y. 18-19 to A.Y. 2022-23 by declaring his
total income by applying section 44AD(1). Now,
if the link breaks in between and say in A.Y.
2020-21 assessee (having turnover below 2 Crores)
do not opt for section 44AD(1) regime, then he
shall not be eligible to take benefit of section
44AD for next 5 assessment years i.e. from A.Y.
2021-22 to 2025-26! It appears that, if the link
breaks in between due to compulsory application
of section 44AB (i.e. gross receipts exceeds
above 2 Crores) then the provisions section
44AD(4) shall not apply. Further, omission of
existing sub-section (4) means that, provisions
of Chapter XVII-C, relating to advance payment of
tax shall apply to an eligible assessee declaring
income under Section 44AD. Consequential
amendment is also proposed under Section 211 of
the Income tax Act relating to instalments of
advance tax and due dates. According to which, an
eligible assessee in respect of eligible business
referred to in section 44AD opting for
computation of profits or gains of business on
presumptive basis, shall be required to pay
advance tax of the whole amount in one instalment
on or before the 15th March of the financial
year.(Applicable w.e.f. 01.06.2016) Necessary
implications of interest on short/non payment of
advance tax as above have been taken care of by
way of an amendment under Section 234C of the
Act.(Applicable w.e.f. 01.06.2016)
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• II. Amendments to section 44AA
• In view of the amendment under Section 44AD as
  above, necessary amendment under Section 44AA of
  the Income tax Act relating to maintenance of
  accounts by certain persons carrying on
  profession or business is proposed by Clause
  24 of the Bill.
• Existing clause (iv) of section 44AA(2) is
  proposed to be replaced so as to provide that
  every person carrying on the business shall, if
  the provisions of sub-section (4)of section 44AD
  are applicable in his case and his income exceeds
  the maximum amount which is not chargeable to
  income-tax, keep and maintain such books of
  account and other documents for computing his
  total income in accordance with the provisions of
  this Act.
•  
• III. Insertion of new section 44ADA
• Current scenario
• Currently, the presumptive tax regime does not
  apply to an assessee, who is carrying
  on profession as referred to in subsection (1) of
  section 44AA or earning income in the nature of
  commission or brokerage or carrying on any agency
  business and who has claimed deduction under any
  of the section 10AA, 10A, 10B, 10BA or deduction
  under any provisions of Chapter VI-A.
• Proposal
• Clause 27of the Bill seeks to insert a new
  section 44ADA in the Income-tax Act relating to
  special provision for computing profits and gains
  of profession on presumptive basis, in line with
  the existing section 44AD as applicable
  to business only.

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• The proposed new section 44ADA seeks to provide
  that notwithstanding anything contained in
  sections 28 to 43C, in the case of an assessee,
  being a resident in India, who is engaged in a
  profession referred to in sub-section (1) of
  section 44AA and whose total gross receipts do
  not exceed fifty lakh rupees in a previous year,
  a sum equal to fifty per cent. of the total gross
  receipts of the assessee in the previous year on
  account of such profession, or as the case may
  be, a sum higher than the aforesaid sum claimed
  to have been earned by the assessee, shall be
  deemed to be the profits and gains of such
  profession chargeable to tax under the head
  "Profits and gains of business or profession".
• It is further proposed that any deduction
  allowable under the provisions of sections 30 to
  38 shall, for the purposes of sub-section (1) of
  the proposed section, be deemed to have been
  already given full effect to and no further
  deduction under those sections shall be allowed.
• It is also proposed that the written down value
  of any asset of profession shall be deemed to
  have been calculated as if the assessee had
  claimed and had been actually allowed the
  deduction in respect of the depreciation for each
  of the relevant assessment years.
• It is also proposed to provide that an assessee
  who claims that his profits and gains from the
  profession are lower than the profits and gains
  specified in sub-section (1)of the proposed
  section and whose total income exceeds the
  maximum amount which is not chargeable to
  income-tax shall be required to keep and maintain
  such books of account and other documents under
  sub-section (1) of section 44AA and get them
  audited under section 44AB.
• The above amendments will take effect from 1st
  April, 2017 and will, accordingly, apply in
  relation to the assessment year 2017- 2018 and
  subsequent years.

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• Fallouts of the Insertion of new section 44ADA
• (a) The new presumptive tax regime for
  professionals is applicable only to assessees
  engaged in a profession as referred to in
  sub-section (1) of section 44AA.
• Section 44AA(1) applies to every person carrying
  on legal, medical, engineering or architectural
  profession or the profession of accountancy or
  technical consultancy or interior decoration or
  any other profession as is notified by the Board
  in the Official Gazette.
• Notified professions  (a) The profession of
  authorised representative and (b) the profession
  of film artist (actor, cameraman, director, music
  director, art director, dance director, editor,
  singer, lyricist, story writer, screen play
  writer, dialogue writer and dress
  designer)Notification No. SO 17(E), dated
  12-1-1977 / Profession of Company
  SecretaryNotification No. SO 2675, dated
  25-9-1992/Profession of Information
  TechnologyNotification No. SO 385(E), dated
  4-5-2001. 
• (b) In many ventures, issue arises as to whether
  it is business or profession for the purpose of
  income-tax act. Due to insertion of new section
  44ADA, the ever going litigation is going to
  increase further as to what is business and what
  is profession. There is no straight jacket
  formula and the juduciary resolves the issue
  having regard to the facts and circumstances of
  each case independently.
• (c) The 50 net profit formula proposed by
  section 44ADA for professionals appears to be on
  higher side as compared to the Easwar committee
  recommendations of 33.33 net profit of total
  receipts.
• IV. Amendments to section 44AB
• Existing clause (b) to section 44AB provides that
  every person carrying on aprofession is required
  to get his accounts audited before the specified
  date if his gross receipts in a previous year
  exceed twenty-five lakh rupees.Similar threshold
  limit in case of business is one crore rupees as
  per clause (a).
• Clause 25of the Bill seeks to amend section 44AB
  of the Incometax Act relating to audit of
  accounts of certain persons carrying on business
  or profession.

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• Proposal
• It is proposed to amend the said clause (b) so as
  to increase the threshold limit to fifty lakh
  rupees.
• Though not mentioned in the Finance Bill, by
  necessary implications of amendments in section
  44AD, the threshold limit for the purpose of
  section 44AB in case of assessees engaged in
  business is assumed to be increased to two crores
  from one crore.
• In view of insertion of new section 44ADA,
  existing clause (d) of the section 44AB is
  proposed to be amended so as to provide that in
  the case of an assessee, who is covered under the
  new proposed section 44ADA, the audit of books of
  account is required if he claims that the profits
  and gains from the profession are lower than the
  profits and gains computed in accordance with the
  provisions of sub-section (1)of the proposed new
  section 44ADA and if his income exceeds the
  maximum amount which is not chargeable to
  income-tax.
• Further, in view of the amendment under Section
  44AD as above, as a necessary implication, a new
  clause (e) is proposed to be inserted below
  amended clause (d) so as to provide that every
  person carrying on the business shall, if the
  provisions of sub-section (4) of section 44AD are
  applicable in his case and his income exceeds the
  maximum amount which is not chargeable to
  income-tax, keep and maintain such books of
  account and other documents for computing his
  total income in accordance with the provisions of
  this Act.
•  

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• V. Conclusion
• The amendment under Sections 44AB and 44AD to
  increase the respective threshold limit from
  twenty five lacs and one crores to fifty lacs and
  two crores respectively is a welcome amendment
  for small business mans from audit compliance
  point of view. Whereas, the amended clause (4) to
  section 44AD is inserted to prevent the possible
  misuse of the presumptive tax regime by the
  taxpayers. Though the new presumptive tax regime
  introduced for professionals is also welcome step
  in order to reduce the compliance burdon of the
  small professionals, the net profit requirement
  of 50 of total receipts apeears to be on higher
  side. Rest of the amendments under Sections 44AA
  and 44AB are consequential in nature.

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