Increase in threshold limit for presumptive taxation scheme for persons having income from business to 2 Crore from Existing one Crore

No deduction for Interest and Remuneration in Calculation of Profit for Section 44AD

Assessee cannot declare Income under presumptive scheme U/s. 44AD for five year from the year in which he has not declared Income under this Section

The existing provisions of section 44AD provide for a presumptive taxation scheme for an eligible business. Where in case of an eligible assessee engaged in eligible business having total turnover or gross receipts not exceeding rupees one crore, a sum equal to eight per cent of the total turnover or gross receipts, or as the case may be, a sum higher than the aforesaid sum shall be deemed to be profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”. Under the scheme, the assessee will be deemed to have been allowed the deduction under sections 30 to 38 of the Act. Further, the eligible assessee can report income less than the deemed income of eight per cent. of the total turnover or gross receipts not exceeding rupees one crore provided he maintains books of accounts as per section 44AB. Further in the case of an eligible assessee, so far as the eligible business is concerned, the provisions of Chapter XVII-C shall not apply.

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In order to reduce the compliance burden of the small tax payers and facilitate the ease of doing business, it is proposed to increase the threshold limit of one crore rupees specified in the definition of “eligible business” to two crore rupees.

It is also proposed that the expenditure in the nature of salary, remuneration, interest etc. paid to the partner as per clause (b) of section 40 shall not be deductible while computing the income under section 44AD as the said section 40 does not mandate for allowance of any expenditure but puts restriction on deduction of amounts , otherwise allowable under section 30 to 38.

It is also proposed that where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five consecutive assessment years relevant to the previous year succeeding such previous year not 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). For example, an eligible assessee claims to be taxed on presumptive basis under section 44AD for Assessment Year 2017-18 and offers income of Rs. 8 lakh on the turnover of Rs. 1 crore.

For Assessment Year 2018-19 and Assessment Year 2019-20 also he offers income in accordance with the provisions of section 44AD. However, for Assessment Year 2020-21, he offers income of Rs.4 lakh on turnover of Rs. 1 crore. In this case since he has not offered income in accordance with the provisions of section 44AD for five consecutive assessment years, after Assessment Year 2017-18, he will not be eligible to claim the benefit of section 44AD for next five assessment years i.e. from Assessment Year 2021-22 to 2025-26.

Further as the turnover limit of presumptive taxation scheme has been enhanced to rupees two crore, it is proposed to provide that eligible assessee shall be require to pay advance tax. However, in order to keep the compliance minimum in his case, it is proposed that he may pay advance tax by 15th March of the financial year.

These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years.

Clause 25 of Finance Bill 2016

Clause 25 of the Bill seeks to amend section 44AB of the Income-tax Act relating to audit of accounts of certain persons carrying on business or profession.

Sub-clause (i) of the said clause seeks to amend clause (b) of the aforesaid section. The said clause provides that every person carrying on a profession is required to get his accounts audited before the specified date if his gross receipts in a previous year exceed twenty-five lakh rupees.

It is proposed to amend the said clause (b) so as to increase the threshold limit to fifty lakh rupees.

Sub-clause (ii) of the said clause seeks to amend clause (d) of the said section 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 and if his income exceeds the maximum amount which is not chargeable to income-tax.

Sub-clause (iii) of the said clause seeks to insert a new clause (e) in the said section 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.

These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017- 2018 and subsequent years.

Clause 26 of Finance Bill 2016

Clause 26 of 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 existing provisions contained in the said section provides that notwithstanding anything to the contrary contained in section 28 to 43C, in the case of an assessee engaged in any business having total turnover or gross receipts not exceeding one crore rupees, a sum equal to eight per cent. 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”.

The proposed section 44AD seeks to provide for estimating income of assessee who is engaged in any business, at a sum equal to eight per cent. of the total turnover or gross receipts, or, as the case may be, a sum higher than the aforesaid sum earned by the assessee. The scheme will apply to such residential assessee who is an individual, Hindu undivided Family or partnership firm but not Limited Liability Partnership firm, whose total gross receipts does not exceed two crores rupees.

It is further proposed that the scheme 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. Under the scheme, the assessee will be deemed to have been allowed the deduction under sections 30 to 38. Accordingly, the written down value of any asset used for the purpose of the business of the assessee will be deemed to have been calculated as if the assessee had claimed and had actually been allowed the deduction in respect of depreciation for the relevant assessment years.

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 year not 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 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.

It is also proposed to increase the threshold limit of one crore rupees specified in the definition of “eligible business” to two crore rupees in the Explanation.

These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017- 2018 and subsequent years.

 Clause 87 of Finance Bill 2016

Clause 87 of the Bill seeks to amend section 211 of the Income-tax Act relating to instalments of advance tax and due dates.

As per the existing provisions of sub-section (1) of the aforesaid section, the advance tax payment schedule for a company is fifteen per cent., forty-five per cent., seventy-five per cent. and hundred per cent. of tax payable on the current income by 15th June, 15th September, 15th December and 15th March, respectively. For assessees (other than companies), the advance tax payment schedule is thirty per cent., sixty per cent. and hundred per cent. of tax payable on current income by 1 5th September, 1 5th December and 15th March, respectively.

It is proposed to amend the advance tax payment schedule for assessees (other than companies) and bring it in consonance with the existing advance tax payment schedule applicable for a company.

It is further proposed that 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 1 5th March of the financial year.

These amendments will take effect from 1st June, 2016.

[Clause 25, 26 & 87]

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Category : Income Tax (20867)
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Tags : Budget 2016 (434) Good Budget (16) Section 44AD (94)
  • J.SRINIVASARAGHAVAN

    SIRS, UPTO ASST.YEAR 2016-17, PARTNERS SALARY & INTEREST ARE ALLOWED THE DEDUCTION. AFTERWARDS 2017-18 IT IS NOT ALLOWED , WE CAN CHANGE THE SALES TAX &/OR ANY WORK AT PARTNERSHIP FIRM. TO INDIVIDUAL. BECAUSE OF THE RATE OF TAX P.F. 30%+3%(EC). IT IS MORE. WHAT CAN WE DO?

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