Tax Simplification Committee has not only recommended for increasing the limit of tax audit to 2 corore but also eased the business environment by increasing the presumptive tax scheme u/s 44AD to Rs 2 Crore . Further, the professionals are brought within presumptive tax scheme by introducing another provision u/s 44AG under which the professionals with receipts upto Rs 1 Crore can enjoy the benefit of presumptive tax scheme …….
Tax Simplification Committee Recommendation on Sec. 44AD
4.1 RECOMMEDNATION TO INCREASE THE ELEGIBILITY UNDER THE PRESUMPTIVE SCHEME FOR SMALL BUSINESSES FROM THE EXISTING RUPEES ONE CRORE TO RUPEES TWO CRORE
The existing presumptive income scheme under section 44AD of the Income Tax Act is applicable to an individual, Hindu undivided family or a partnership firm (not to limited liability partnership). This scheme is quite popular amongst small businessmen who declare their income at 8% of the total turnover or gross receipts of the previous year. The limit was raised from rupees sixty lakh to rupees one crore by the Finance Act,2012, w.e.f. assessment year 2013-14. Keeping in view the popularity of the scheme and its impact on ease of doing business the committee recommends that the existing limit of rupees one crore be increased to rupees two crore. Consequential amendments in section 44AA have already been recommended.
It was also brought to the notice of the Committee that small tax payers who are not declaring income as per the presumptive income scheme find it difficult and cumbersome to maintain accounts. It is therefore recommended that a de minimus provision should be made exempting small businessmen and professionals from the mandatory requirement of maintaining books of accounts and getting them audited. These cases would involve a tax liability of maximum rupees seven thousand as the income expected to be declared by them @ 8% on the turnover of rupees forty lakhs is rupees three lakh twenty thousand and in any case rupees two lakh and fifty thousand is not chargeable to tax. The difference of rupees seventy thousand attracts tax of rupees seven thousand only at the existing rates.
4.2 AMENDMENTS RECOMMENDED
Based on the aforesaid recommendations the following amendments should be made in section 44AD of the Income-tax Act, 1961:-
A. The existing sub-section (5) should be substituted by the following sub-section
“(5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee who claims that his profits and gains from the eligible business are lower than the profits and gains specified in sub-section (1), shall be required to keep and maintain such books of account and other documents as required under sub- section (5) of section 44AA and get them audited and furnish a report of such audit as required under sub-section (2) of section 44AA provided the total turnover or gross receipts from such business exceed rupees forty lakhs.
B. The existing definition of eligible business given in clause (b) to the
Explanation to section 44AD is to be amended as follows: (b) “eligible business” means,—
(i) any business except the business of plying, hiring or leasing goods carriages referred to in section 44AE; and
(ii) whose total turnover or gross receipts in the previous year does not exceed an amount of two crore rupees.
5.1 A PRESUMPTIVE INCOME SCHEME FOR PROFESSIONALS
The existing scheme of taxation provides for a simplified presumptive income scheme for persons engaged in business. The Committee was of the view that this scheme is quite popular amongst small traders. It was felt that there is a strong case for introducing a similar simplified presumptive income scheme for professionals. Accordingly, the Committee recommends the introduction of a presumptive income scheme whereby the income from profession will be estimated to be thirty
three and one-third (33 1/3%) of the total receipts in the previous year.
The benefit of this scheme will be restricted to professionals whose total receipts do not exceed one crore rupees during the financial year.
5.2 AMENDMENTS RECOMMENDED
Based on the aforesaid recommendation, the following amendment should be made in the Income-tax Act, 1961:-
Special provision for computing profits and gains of profession on presumptive basis [Section 44AG]
In the Income-tax Act, after section 44AF, the following section shall be inserted with effect from the 1st day of April, 2017,-
“44AG. (1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eligible profession, the profits and gains of such profession chargeable to tax under the head “Profits and gains of business or profession” shall be deemed to be –
(i) a sum equal to thirty three and one-third per cent of the gross receipts of the assessee in the previous year on account of such profession; or
(ii) a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee.
(2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed:
Provided that where the eligible assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub-section (1) subject to the conditions and limits specified in clause (b) of section 40.
(3) The written down value of any asset of an eligible profession shall be deemed to have been calculated as if the eligible assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.
(4) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee who claims that his profits and gains from the eligible profession are lower than the profits and gains specified in sub-section (1), shall be required to keep and maintain such books of account and other documents as required under sub- section (5) of section 44AA and get them audited and furnish a report of such audit as required under sub-section (2) of section 44AA provided the gross receipts from such profession exceed rupees twenty lakhs.
Explanation.—For the purposes of this section,— (a) “eligible assessee” means,—
(i) an individual, Hindu undivided family or a partnership firm, who is a resident, but not a limited liability partnership firm as defined under clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009); and
(ii) who has not claimed deduction under any of the sections 10A,
10AA, 10B, 10BA or deduction under any provisions of Chapter VIA under the heading “C. – Deductions in respect of certain incomes” in the relevant assessment year;
(b) “eligible profession” means,—
(i) the legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as may be prescribed; and
(ii) whose total gross receipts in the previous year does not exceed an amount of one crore rupees.”.