Make Presumptive Tax under Income Tax user friendly more attractive – 44AD, 44ADA and 44AE
Section 44AD(4)reads as under:
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 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).
From the above clause it is clear that the assessee cannot opt for ‘Presumptive Tax’ for six years (including the year in which he has come out of the scheme) , if he has not offered income under this scheme for consecutively for six years including the first year in which he has opted for the scheme. Does it mean that if has opted for the scheme for six years consecutively, afterwards he is free to opt for the scheme, whenever he likes?
If the intention of the statute is to deny the benefit to those who opts out of the scheme, it is sufficient to mention that once if he fails to opt for the benefit of this section in any year (instead five years) subsequent to the year he has availed the benefit he cannot claim the same for next five years i.e., he cannot return for five years.
Hence the clause 4 is to be replaced as:
Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any year 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).
Of course similar restriction is not in the other two sections viz. 44ADA & 44 AE and hence whenever the assessee feels convenient he can opt for presumptive tax.
Another drawback in this Presumptive Taxation under sections 44AD & 44ADA is that in the case of Partnership Firms, Partners’ Interest and Salary are not allowed as deduction. While books of accounts are maintained and audited, before arriving at the taxable income, interest @ 12% p.a. and salary up to the limits provided u.s 40b are allowed as deduction. It will be fair and just to allow interest and salary to partners so that those Partnership Firms which opt for presumptive tax are treated on par with others.
Further in the present situation if a partner gets and interest and salary from a Partnership Firm which has offered income under presumptive taxation scheme, whether such interest and salary are exempt from Income Tax in the hands of the partners is not specified in the Act though they are not allowed as expenditure in Firm’s hands. Since all the expenditure are deemed to have been allowed in Firm’s hands the interest and salary would be subject to tax in partners’ hands. In the normal course such interest and salary (which are allowed as deduction) are taxable in the hands of the partners as Income from Business/Profession, in the case Firms, which are subject to audit and offer less income than the rates prescribed under this scheme.
Hence it suggested that the assessees who offer income under this scheme are to be allowed to deduct interest and salary to partners upto the existing limits from the income offered at the prescribed rates so that they are also treated on par with those who offer less income with audited accounts.
TAXATION OF DIVIDENDS
The dividend receipts are taxed at the hands of the recipient @ 10% if the receipts exceed Rs. 10 Lakhs. The income of a company is already taxed @ 29% or 30% and again the company has to pay 17.304% as Dividend Distribution Tax (DDT) at the time of declaring dividend on the income distributed as Dividend. This dividend again taxed at the hands of the shareholder @ 10%. The tax rate works out to more than 57%, which should not be intention of the law. If the exchequer is bent upon taxing the dividend, the dividend can be added with the total income and the DDT can be allowed as TDS at the hands of the shareholder. Even then the same income is taxed two times; once in the hands of the company and again in the hands of the share holder. But taxing the same income three times is not reasonable by any means. Whether the Finance Minister will look into the issue afresh again and amend the Act to delete the taxation of 10% if it exceeds Rs. 10 Lakhs and allow the DDT as TDS in the Hands of the shareholders.