Once a taxpayer opts for this Scheme and files the returns of income for a year and in the subsequent year if he declares lower income than the prescribed percentage then he shall not be eligible to claim the benefit of this section for the next five years and in addition if his total income exceeds the basic exemption limit he shall be liable to maintain accounts prescribed u.s.44 AA and get the accounts audited under section 44B i.e. Compulsory Audit becomes compulsory though his Turnover is less than Rs. 1 Crore. The Taxpayer is not able to understand the rationale behind this provision. For instance, in the first year he may not have proper records to substantiate his income which is below 8% (or 6%) and hence he might have offered higher income than he has actually earned. But in the subsequent year if his real income supported by proper records and vouchers is less than rates specified he can file a return of income admitting lower income than the prescribed rates which supported by audited accounts which is certified by a Chartered Accountant. But he cannot revert back to the presumptive taxation for next five years and audit becomes compulsory. Of course similar provision is not in the other two sections viz. Section 44ADA & Section 44AE.
Another drawback in these presumptive taxation in the case of Partnership Firms is that 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 certain limits 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 it is exempt from Income Tax is not specified in the Act. In the normal course this interest and salary are taxable in the hands of the partners as Income from Firm, in the case Firms, which are subject to audit and offer less income than the rates prescribed under this scheme.
Another anomaly is that calculation of 6% in the case of payments received by an account payee cheque or account payee draft or use of electronic clearing system because the all the payments received during the current year may not relate to sales made during the year and such receipts may relate earlier years also. There may be situations wherein such payments may exceed the current year turnover and there may be cash receipts relating to current year also. In such a situation calculation will be difficult and lead to wrong results.
Hence it suggested that the assessees are to be given choice of either to offer income under this scheme or to offer less income with the support of audited accounts without any restriction. Likewise interest and salary to partners should be allowed as deduction from the income arrived at the prescribed rates on production of adequate records for the claim, which is otherwise taxable as Income from Firm in the hands of the partners.