D. Mohan Girimaji
TAX ON PRESUMPTIVE BASIS IN CASE OF CERTAIN ELIGIBLE BUSINESSES OR PROFESSIONS
To give relief to small taxpayers from the tedious job of maintenance of books of account and from getting the accounts audited, the Income-tax Act has framed the presumptive taxation scheme under sections 44AD, section 44ADA and section 44AE. In this part you can gain knowledge about various provisions of the presumptive taxation scheme of section 44AD, section 44ADA and section 44AE. Meaning of presumptive taxation scheme.
As per the Income-tax Act, a person engaged in business or profession is required to maintain regular books of account and further, he has to get his accounts audited. To give relief to small taxpayers from this tedious work, the Income-tax Act has framed the presumptive taxation scheme under sections 44AD, 44ADA and 44AE. A person adopting the presumptive taxation scheme can declare income at a prescribed rate and, in turn, is relieved from tedious job of maintenance of books of account and also from getting the accounts audited.
In this budget sec 44 AD(2) has been deleted and the consequences of this is illustrated by this example.
Suppose a partnership firm makes turnover of Rs 25 lakhs.
As per sec 44 AD presumptive rate of 8% net profit amounts to Rs. 2 lakhs.
Upto last year out of Rs 2 lakhs there was provision for deducting partners salary, remuneration and interest in this amount upto a maximum of 90% as per sec44 AD(2).
Hence taxable income was only for 10% of 2 lakhs which amounts to Rs20000.
So Income tax payable was 30% of 20000 which is Rs 6000 only.
But in this budget sec44 AD(2) has been deleted which means salary, remuneration and interest paid to partners would also not be allowed to be claimed as a deduction.
Hence from this year taxable income will be Rs 2 lakhs .
Income tax payable will be 30% of 2 lakhs which will be Rs 60000.
Please observe that income tax paid has increased by 10 times from Rs 6000 to Rs 60000.
Our next alternative is to audit our books of account and lessen our tax burden. But the basic purpose of introducing presumptive taxation scheme as above gets defeated and all small tax payers will be forced to maintain books of accounts and get audited their accounts, which is also costly affair. When an individual gets exemption from IT upto Rs 2.5 lakhs, why a firm has no benefit like them. In this competetative world it is very difficult to survive honestly.
Hence please look into the matter and make every possible effort to reintroduce sec44 AD(2) so as tribe of small taxpayers will increase as per principle of sec44 AD.
Looking into this year’s budget and enquiry with auditors I came to this conclusion. If this is not the case please excuse me and update me with correct facts.
this is only for who declare thier income under 44ad not for who file ITR 5 regular. they can take benifits of partner int and remuniration
Dear,
As per your analysis now if you are opting 44AD as a firm then your taxable income will be 2 lacs.
I want to bring to your notice that:
Earlier calculation:
Net profit (always after salary, int to partners) : 200000
Add back:Salary, interest claimed (amount debited in P&L is assumed): 150000
Now Net before partner salary: 350000
Mandatory Sec44 AD(2) deduction say 50%: 175000
Net Profit u/s 44AD: 175000
As per latest provision:
Profit before 40b: 350000
44ab allowance(assumed):175000
Net taxable profit: 175000
No need to add back already claimed salary of rs. 175000.
Kindly explain me how you brought tax difference of Rs. 54,000/-.
In both provision deduction of expenses is allowed but you only allowed 90% deduction from 200000 without considering that, this profit is before claiming any salary deduction.
I totally agree This is going to cause hardship to the partnership firms with small turnovers
I totally agree. This is going to cause hardship to the partnership firms with small turnovers. The increase of Turnover limit upto 2 crores for Audit under section 44AB is of no use. This certainly requires reconideration
This point is not noticed by most of the people because it is beneficial to auditors and they are not disclosing to their clients.
But it is death knell for all small businesses and should be rectified.
What mr pradeep is saying?
Not understood pls write clearly and do not write short forms
If BEL is kept to 2.5l may file their income with different pans and may evade tax
yes the deletion of section 44AD(2) will put into hardship to small assessee ie., having turnover Rs. 1 crore
YES THIS POINT IS CORRECT AND HAS TO BE SEEN AND RAISED SO THIS HARD IS REMOVED IN THE BUDGET AND MUST BE RAISED BY DIFFERENT CA ASSOCIATION AND TAX – PAYERS. SO PURPOSE OF SECTION 44AD IS SERVED. THANKS
You are completely correct.