Budget 2023: Increasing threshold limits for presumptive taxation schemes
The existing provisions of Section 44AD of the Act, inter-alia, provide for a presumptive income scheme for small businesses. This scheme applies to certain resident assessees (i.e., an individual, HUF or a partnership firm other than LLP) carrying on eligible business and having a turnover or gross receipt of two crore rupees or less. Under this scheme, a sum equal to 8% or 6% of the turnover or gross receipts is deemed to be the profits and gains from business subject to certain conditions. If assessee has claimed to have earned higher sum than 8% or 6%, then that higher sum is taxable.
2. Section 44ADA of the Act provides for a presumptive income scheme for small professionals. This scheme applies to certain resident assessees (i.e., an individual, partnership firm other than LLP) who are engaged in any profession referred to in subsection (1) of section 44AA, and whose total gross receipts do not exceed fifty lakh rupees in a previous year. Under this scheme, a sum equal to 50% of the gross receipts is deemed to be the profits and gains from business. If assessee has claimed to have earned higher sum than 50%, then that higher sum is taxable.
3. Under section 44AB of the Act, every person carrying on business is required to get his accounts audited, if his total sales, turnover or gross receipts, in business exceeds one crore rupees in any previous year. The limit is raised to ten crore rupees where at least 95% of receipts/payments are in non-cash mode. In case of a person carrying on profession he is required to get his accounts audited, if his gross receipts in profession exceeds, fifty lakh rupees in any previous year. Those opting for and fulfilling the conditions laid in the presumptive scheme are exempt from audit under this section.
4. Representations have been received for increasing the thresholds for eligibility for availing benefit of the presumptive schemes for eligible business and professions in order to benefit more persons in the small and medium segment.
5. In order to ease compliance and to promote non-cash transactions, it is proposed to increase the threshold limits for presumptive scheme in section 44AD and section 44ADA of the Act on fulfilment of certain conditions.
6. It is proposed to provide that:
- under section 44AD of the Act, for eligible business, where the amount or aggregate of the amounts received during the previous year, in cash, does not exceed five per cent of the total turnover or gross receipts, a threshold limit of three crore rupees will apply.
- under section 44ADA of the Act, for professions referred to in sub-section (1) of section 44AA of the Act, where the amount or aggregate of the amounts received during the previous year, in cash, does not exceed five per cent of the total gross receipts, a threshold limit of seventy-five lakh rupees will apply.
- the receipt by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the receipt in cash.
- provision of section 44AB of the Act shall not apply to the person, who declares profits and gains for the previous year in accordance with the provisions of sub-section (1) of section 44AD of the Act or sub-section (1) of section 44ADA of the Act, as the case may be.
7. These amendments will take effect from 1st April, 2024 and will accordingly apply to the assessment year 2024-2025 and subsequent assessment years.
[clauses 15, 16 & 17]
Extract of relevant clause of Finance Bill 2023
Clause 15 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.
It is proposed to substitute the first proviso to provide that the provisions of the said section shall not apply to a person, who declares profits and gains for the previous year in accordance with the provisions of sub-section (1) of section 44AD or sub-section (1) of section 44ADA, as the case may be.
This amendment will take effect from 1st April, 2024 and will, accordingly, apply in relation to the assessment year 2024-2025 and subsequent assessment years.
Clause 16 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 provisions of the said section, inter alia, provide for a presumption income scheme for small businesses, under which a sum equal to eight per cent. or six per cent. of the total turn over or gross receipts is deemed to be the profits and gains from business, in case of certain assessees, that is, an individual, Hindu undivided family or a partnership firm other than limited liability partnership, carrying on eligible business and having a turn over of two crore rupees or less. If such assessee has claimed to have earned higher sum than that eight per cent. or six per cent., then that higher sum is taxable.
Clause (b) of Explanation to the said section defines “eligible business” which can avail the benefit of the provisions of the said section to mean any business except the business of plying, hiring or leasing goods carriages referred to in section 44AE, whose total turnover or gross receipts in the previous year does not exceed an amount of two crore rupees.
It is proposed to insert two provisos to the said section to provide an increased threshold limit of three crore rupees where the amount or aggregate of the amounts received by the eligible assessee during the previous year, in cash, does not exceed five per cent. of the total turnover or gross receipts of such previous year and also that the receipt of amount or aggregate of the amounts by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the receipt in cash.
This amendment will take effect from 1st April, 2024 and will, accordingly, apply in relation to assessment year 2024-2025 and subsequent assessment years.
Clause 17 of the Bill seeks to amend section 44ADA of the Income-tax Act relating to special provision for computing profits and gains of profession on presumptive basis.
Sub-section (1) of the said section provides that notwithstanding anything contained in sections 28 to 43C, in case of an assessee, being an individual or a partnership firm other than a limited liability partnership, who is a resident in India, and 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 proposed to insert two provisos to the said sub-section to provide an increased threshold limit of seventy-five lakh rupees where the amount or aggregate of the amounts received by the assessee during the previous year, in cash, does not exceed five per cent. of the total gross receipts of such previous year and also that the receipt of amount or aggregate of amount by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be receipt in cash.
This amendment will take effect from 1st April, 2024 and will, accordingly, apply in relation to the assessment year 2024-2025 and subsequent assessment years.
Extract of Relevant Amendment Proposed by Finance Bill, 2023
15. Amendment of section 44AB.
In section 44AB of the Income-tax Act, for the first proviso, the following proviso shall be substituted with effect from the 1st day of April, 2024, namely:––
“Provided that this section shall not apply to a person, who declares profits and gains for the previous year in accordance with the provisions of sub-section (1) of section 44AD or sub-section (1) of section 44ADA:”.
16. Amendment of section 44AD.
In section 44AD of the Income-tax Act, in the Explanation, in clause (b), after sub-clause (ii), the following provisos shall be inserted with effect from the 1st day of April, 2024, namely:––
‘Provided that where the amount or aggregate of the amounts received during the previous year, in cash, does not exceed five per cent. of the total turnover or gross receipts of such previous year, this sub-clause shall have effect as if for the words “two crore rupees”, the words “three crore rupees” had been substituted:
Provided further that for the purposes of the first proviso, the receipt of amount or aggregate of amounts by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the receipt in cash.’.
17. Amendment of section 44ADA.
In section 44ADA of the Income-tax Act, after subsection (1), the following provisos shall be inserted with effect from the 1st day of April, 2024, namely:––
‘Provided that in case of an assessee where the amount or aggregate of the amounts received during the previous year, in cash, does not exceed five per cent. of the total gross receipts of such previous year, this sub-section shall have effect as if for the words “fifty lakh rupees”, the words “seventy-five lakh rupees” had been substituted:
Provided further that for the purposes of the first proviso, the receipt of amount or aggregate of amounts by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the receipt in cash.’.
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