1. The threshold limit for audit u.s 44AB and upper limit for offering income under the ‘Presumptive Tax Scheme’ for Income from Business should me made clear i.e. identical. The following is suggested:

For Business Income:

If the Gross Receipts exceed Rs. 2 Crores Compulsory Audit u.s 44AB should be made mandatory and if it less than Rs. 2 Crores they can opt for declaring income u.s 44AD. The present limit for 44AB being Rs. 1 Crore and for 44AD being Rs. 2 Crores is confusing.

Pre Budget Memorandum for Union Budget 2021-22

2. Applicability of sections 44AD, 44ADA & 44AE: As of now there is no clarity. Each section has got its own definition of the assessees to whom it is applicable. All the sections should be made applicable to all resident assesses excluding the assessees whose accounts are necessarily to be audited under any other section of the Income Tax Act 1961.

3. Under Section 44AD income is arrived @ 8% of the turnover and the rate is lowered to 6% for receipts other than cash. But such a concession is not made available u.s. 44ADA and 44AE. For section 44ADA the income is arrived @ 50% of the gross receipts, wherein to promote non-cash transactions in this category also for receipts other than cash, 40% may be taken as income. Likewise u.s 44AE Rs. 1,000/- p.m. per ton for Heavy Goods Vehicle and Rs.7,500/- for other vehicles are estimated as income. Here also concession may be given for promoting non-cash transactions by allowing deduction of 5% of the receipts in mode other than cash

4. Under section 44AD the turnover is taken into account, which is nothing but net sales (i.e. sales less returns, if any), whereas under section 44ADA the rate of income is arrived from the Gross Receipts, which may include reimbursement of expenses also and to calculate income @ 50% on the receipt of reimbursement of expenses is not correct. Hence such receipts should be allowed to be deducted from the gross receipts for arriving at the calculation of 50%.

5. Regarding continuation of offering Business Income under Presumptive Tax basis in subsequent years:

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).

6. Regarding Interest and Salary to Partners for Partnership Firms offering income under the presumptive tax basis:

In the case of Partnership Firms, Partners’ Interest and Salary are specifically not allowed as deduction under section 44AD whereas the section 44ADA is silent about the same. While books of accounts are maintained and audited, before arriving at the taxable income, interest @ 12% p.a. on the amounts invested in the Partnership Firm either in Capital Account or in Current Account of the Partners and salary up to the limits provided u.s 40b are allowed as deduction before arriving at the Taxable Income. . It will be fair and just to allow interest and salary to partners so that those Partnership Firms which opt for presumptive tax are also treated on par with others who get their accounts audited. Further in the present situation if a partner gets 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 is deemed to have been allowed in Firm’s hands the interest and salary would be subject to tax in partners’ hands also, which will lead to double taxation. In the normal course in the case Firms, which are subject to audit and offer less income than the rates prescribed under this scheme, such interest and salary (which are allowed as deduction) are not taxable in the hands of the partners as Income from Business/Profession, Hence it suggested that the assessees who offer income under this scheme are to be allowed to deduct interest and salary to partners up to 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. As of now the salary to partners is allowed to be deducted from the percentage of profit arrived under presumptive basis u.s 44AE only.

7. As of now under section 40A(3) the expenditure made in cash is totally disallowed if it exceeds Rs. 10,000/- (Rs. 35,000/- in case of lorry hire charges). Instead the excess payment above the limit may be disallowed.

8. As of now if discrepancies are found in Form No. 26AS such as ‘receipt of maturity amount of the Policy and the TDS’ are found in the Policy whereas the assessee in whose Form No. 26AS it appears has not received any such amount during the year or Interest and TDS thereon appears whereas the assessee has not received any such interest etc., and if the return is filed without taking into account such information, the assessee will be getting notice from CPC for the differences in Form no. 26AS enhancing the income and demanding additional tax. Filing rectification or appeal for such issues are time consuming. Hence it is suggested that in such instances the assessee should be given an opportunity to apply for rectification with the concerned entity which had uploaded the wrong information with an option to inform the CPC also about the discrepancies.

9. Time Limit for completion of Appeals by C.I.T (Appeals) and I.T.A.T.:

There are lots of cases pending before C.I.T (Appeals) and before I.T.A.T. It is high time that a time limit is fixed for disposal of appeals by both of them. Once the case is taken up for hearing (including face-less) a time limit, say three or six months from the date of first hearing, the appellate order should be passed unless the delay is attributable to the assessee. This will reduce the pending cases and finality will be reached faster.

10. Compensation to assesses for wrong assessments made:

If an assessment order is passed by an Assessing Officer demanding a huge amount and if the assessee was able to succeed in proving in appeals the wrong assessment made by the assessing officer and get the demand deleted, he should be compensated for the mental agony undergone by him in running from pillar to post in either paying the tax fully or partially and for applying for stay of collection of taxes and the loss sustained by him in paying the demand and in incurring expenses incurred by him for filing appeal and for representation at higher levels. The compensation should be equal to the demand made at least.

11. Suggestions for widening the Tax Base:

11.1 As of now more time is spent on the scrutinizing the returns filed than the time spent in roping new cases. More the ‘Income Returned’, more the chances of getting enquiry and hearing. It is to be avoided. By existing practice the ‘scrutiny assessments’ have to be completed necessarily by increasing the income returned either by disallowing certain expenditure or by enhancing the income earned, which results in additional taxes with interest and penalty proceedings. As a custom the income returned is not accepted and so far the Assessee/Representative is requested to attend the Income Tax Office many-a-times and in future under Faceless Assessments we have to wait and see what is going to happen. Because of this attitude, physiological fear arises among assessees, which is deterrent for the cordial relationship between the Assessing Officer and the Assessee. Hence the misconception among assessees is that if they file returns voluntarily they will be subjected to rowing enquiry. So they wait till a compelling situation arises. If this is taken care, more people will come forward to file returns of income voluntarily. Of course the assessees should be aware of the fact that if there is willful default or concealment appropriate action would be taken by the Department

11.2 Many of the properties are sold by registered documents up to Rs. 10,00,000/- (Rupees Ten Lakhs only) without PAN of the buyer and seller and there is a chance that such transactions may escape the attention of the Income Tax Department. Hence PAN should be made compulsory for registration of documents carrying value of above Rs. 1 Lakh. At present the public receive notice after a long time after they registered the documents exceeding Rs. 30 Lakhs basing on the information available in the AIR. But this value (reporting under AIR) should be reduced to Rs. 1 lakh and the notices should be sent as early as possible. If the capital gains arising there from are offered as Income and the taxes are paid in time, the assessees can save the interest they are paying due to nonpayment of Advance Tax and belated filing of return of income after receipt of notice and they need not be subjected to penalty proceedings also. They can avoid capital gains tax by investing the proceeds/gains in approved securities or in house property before the stipulated time, if they are eligible provided they are alerted in time. This will also help to increase and the tax revenue

11.3 Another area is submission of Form 61/61A by people at various situations where PAN is required or otherwise they can give these forms. Though either Form 61 or Form 61A is to be obtained many get both the forms without filling the same and it is not known whether any authority is monitoring about the obtention and submission of the same with the Income Tax Department and further action taken on the forms so submitted. If more time is spent on this issue more assessees can be roped in. All the Form60/61 given at various locations by a person should be clubbed with the help of ‘id proof’ or ‘Address Proof’ or ‘Aadhar Card’

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