DEAR FRIENDS LET US DISCUSS HOW TO COMPUTE PROFITS AND GAINS OF BUSINESS ON PRESUMPTIVE BASIS
1. First we will discuss the business which has been eligible for scheme provided by section 44AD of income tax act, 1961. This scheme covers up almost all small businesses which has total turnover up to 200 lakh. Total turnover is the crux of this section. Here important is total gross turnover; gross turnover is before deducting any expense.
RATE OF TAX
2. Profit would be assumed as 8% of total turnover or gross receipts with Turnover Less than Rs. 2 Crore Per Annum.
One new point which has to be kept in mind that this 8% rate is not final rate of tax, when tax payer received any amount;
During the previous year or before the due date of filing of return under section 139(1) in respect of that previous year.
(Crux-That means assessee must receive money on or before 30th September 2018 when the previous year is 2017-18).
Than the rate of tax in respect of above amount received is 6%.
This is the new relaxation provided by government to assessee to give more exposes to transaction by bank.
So basically now there are two rate of Income Presumption are there in section 44AD
3. The persons who are eligible for this scheme is also important. Eligible persons are mentioned below.
Above would be covered under this scheme.
EXPENSES DEEMED TO BE ALLOWED
4. In this section when income is assessed no further deduction is allowed. Which means all deductions allowable under sections 30 to 38 shall be deemed to have been allowed in full and no further deduction shall be allowed.
BOOKS OF ACCOUNTS AND AUDIT
5. Purpose of section 44AD is to grant relief from maintenance of books of accounts and audit. The purpose of widening the scope of this plan is to reduce the compliance and administrative burden on small businessmen and tone down them from the requirement of maintaining books of account. Such assessees opting for the presumptive scheme are not required to maintain books of account under section 44AA and also not required to get them audited under section 44AB.
This will encourage the assessee to pay taxes without any hurdle of compliance of audit and books of accounts.
6. One more benefit which has been given to assessee is that if he opts for section 44AD he is not liable to get his account audited even if his gross receipts are up to 2 crores.
In any other case this benefit is only up to 1 crores i.e. Section 44AB makes it obligatory for every person carrying on business to get his accounts of any previous year audited if his total sales, turnover or gross receipts exceed 1 crore.
(Crux- section 44AD give benefits of exemption from audit up to 2 crores which would otherwise be up to 1 crores.)
7. If the assessee is carrying on more than 1 business, which is occur very often, then the consolidated turnover (all business turnover) will be taken to compute gross sales figures under section 44AD.
8. If on the other hand assessee is carrying on business as well as professional income than section 44AD only apply to income earned under business income. Professional income would be taxed on normal rates.
TREATMENT OF WRITTEN DOWN VALUE OF ASSETS
9. The written down value of the asset of such business shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the deduction for depreciation for each of relevant assessment years.
Deduction on account of depreciation is not obtainable. However, the WDV of any asset used in the business covered under the scheme of section 44AD shall be calculated as if depreciation as per section 32 is claimed and allowed. This means WDV of assets for the purpose of income tax would be taken after deducting depreciation. Thus, even though no depreciation is available separately, yet for purpose of computation of the WDV of the asset, depreciation will be deducted.
11. Eligible assessee is now required to pay advance tax on 15th march of the previous year for which the income is to be assessed. This liability of advanced tax has been imposed w.e.f 01.04.2017. Since 01.04.2017 assessees opting for section 44AD are not liable to pay advance tax.
12.Persons not eligible for presumptive taxation scheme: The following persons are specifically excluded from the applicability of the presumptive provisions of section 44AD
i. A person carrying on profession as referred to in section 44AA(1) i.e.,
Any other profession as is notified by the Board (namely, authorized representatives, film artists, company secretaries and profession of information technology have been notified by the Board for this purpose);
ii. A person earning income in the nature of commission or brokerage or;
iii. A person carrying on any agency business.
DIFFICULTY IN OPTING SCHEME
13. Previously any person can easily get out of the scheme in any PY and can opt for the scheme in any succeeding years. But now this practices has been discontinues due to section 44AD (4).
Now if a person chose option to get out of scheme in any P.Y. succeeding to the P.Y. in which he opt for the scheme, than he can’t avail the benefit of the scheme for next 5 years succeeding to the year in which he opt out of the scheme.
This can be under stand by following example.
Assessee opt for scheme in
Get out of scheme in AY 2101-20
Now he cannot claim exemption from AY 2020-21 to AY 2024-25
SOME RECENT AMENDMENTS
|• When assessee cannot opt scheme for continuous FIVE year period than he shall not opt scheme for continuous succeeding FIVE years from the AY from which he opt out of the scheme.|
|• Salary, interest, remuneration paid to partner as per section 40(b) is not deductible. Which is prior to amendment is deductible.|
|• Increase in threshold limit of eligible business from 1 crore to 2 crore.|
|• Advance tax which was previously exempt now is payable as on 15th march.|