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    PRESUMPTIVE TAXATION U/S 44ADA

    Introduction of Presumptive Taxation:

    To reduce the burden of small business taxpayers from various tax compliances, Income Tax Act,1961 has introduced a Simplified Taxation System, widely known as “Presumptive Taxation”.

    What is Presumptive Taxation?

    ?UnderPresumptive Taxation, the Income of the Assessee is computed on presumptive basis i.e. at prescribed percentage of the Gross Receipts and all the expenditure incurred by the Assessee related to business are presumed to be claimed.

    ?Thus,thePresumed/Estimated Income is taxed at Normal rates 

    ?Itisespecially designed for small business taxpayers to provide relief from maintenance of books of accounts and from audit under the provisions of income tax act,1961 so that they can file their Income Tax-Return and pay their taxes hassle free. 

    Stream of Presumptive Taxation:

    ?Well,abare look at Presumptive Taxation of the Income Tax Act, 1961 gives an impression that it is a step of Finance Ministry towards simplification of tax structure and compliance applicable to Small business Taxpayers. Also the Section appears to be lucid in interpretation and application, but it is not so easy as it appears to be. 

    A New Section under Presumptive Taxation as per Income Tax Act, 1961 has been introduced in the Budget-2016i.e.Section 44ADA (Special provision for computing profits and gains of profession on presumptive basis), w.e.f Assessment year 2017-18.The main aim of this section is to simplify the tax compliance of Professionals particularly small professionals so that it facilitates ease and efficiency in carrying out their professional obligations.

    Eligibility under Section 44ADA of Income tax act,1961:

    mAnAssessee, being a Resident in India, who is engaged in a Profession referred to in sub-section (1) of section 44AA of Income Tax Act,1961

    Professions referred to Section 44AA(1) of Income Tax Act,1961 are as follows:

    • Legal
      • Medical
      • Engineering or architectural
      • Accountancy
      • Technical consultancy
      • Interior decoration
      • Any other profession as notified by CBDT. 

    Till now CBDT had notified the following professions only, are:

    ?Filmartist

    ?Company Secretary(CS)

    ?Information Technology

    ?Authorized Representative

    mWhosetotal Gross receipts do not exceed Rs. 50,00,000 in a previous year.

    (Gross receipts mean: the receipts received from client which is including of any tax, duty or cess.)

    Eg: M/s Krishna & co, rendering services of Financial Consultancy and having Gross receipts of Rs. 49,50,000. Whether eligible to opt under Sec 44ADA. No. Because such Profession is not covered under Sec 44AA(1).

    Computation of Income Under the head PGBP u/s 44ADAof Income tax act,1961:

    sumAequal to 50% or higher than 50% of the total gross receipts of the assessee in the previous year on account of such profession, shall be deemed to be the profits and gains of such profession chargeable to tax under the head “PGBP".

    Eg: Naidu Consultancy (proprietorship) had gross receipts of Rs. 40,00,000 and rendering services of Accounting Consultancy. Income under head PGBP u/s 44ADA will be

     

     

    Particulars

     

    Amount in Rs.

    Total Gross receipts

     

    40,00,000

    Income under head PGBP u/s 44ADA @ 50% (Rs. 40,00,000*50%)

     

    20,00,000

    Gross Total Income

     

    20,00,000

    Other Provisions related to Section 44ADA of Income tax act,1961:

     

     

     

    mAnydeduction allowable under the provisions of sections 30 to 38 shall, for the purposes of section 44ADA(1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed.

    Eg: Chetan Solutions (proprietorship) had gross receipts of Rs. 20,00,000 and purchased furniture in the beginning of the year for Rs. 2,00,000/-.Tax liability under presumptive taxation will be:

     

    Particulars

    Amount in Rs.

    Asset (Furniture)

    2,00,000

    Gross receipts

    20,00,000

    Income u/s 44ADA (Presumptive Scheme)

    10,00,000

    Less: Depreciation @ 10% u/s 32

    -

    Gross Total Income

    10,00,000

     

    Thus, u/s 44ADA(2) of Income Tax Act, 1961 deduction u/s 32 was deemed to be given.

    mThewritten down value of any asset used for the purposes of profession shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.

    Eg:  M/s Ram & co, opt for Presumptive taxation, had furniture worth Rs. 2,80,000 bought in FY 2015-16 and sold in FY 2017-18 for Rs. 2,35,000/-.

    Written Down Value of furniture for FY 2017-18 is calculated as if depreciation was actually allowed u/s 32. Thus, Depreciation @ 10% was deducted from cost of the Asset so,

     

     

    Financial Year

    (FY)Written Down Value (WDV)

    Amount in Rs

    2015-2016

    2,80,000

    (-)28,000

    2,52,000

    2016-2017

    2,52,000

    (-) 25,200

    2,26,800

    2017-2018

    2,26,800

    (-) 22,680

    2,04,120

     

     

    Short Term Capital Gain(STCG) =>2,35,000 (–)2,04,120 = 30,880,

    Therefore, M/s Ram & co as to pay tax on such STCG (i.e. Rs. 30,880) in FY 2017-18 (i.e. AY 18-19).

    mNotwithstanding anything contained in the foregoing provisions of this section, an Assessee who claims that

    ?hisprofits and gains from the profession are lower than the profits and gains specified in Sec

    44ADA(1)

    and

    ?whosetotal income exceeds the maximum amount which is not chargeable to income-tax,

    shall be required to keep and maintain such books of account and other documents as required under sub-section (1) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.

    E.g: There are two individuals, Assessee 1 and Assessee 2, whose gross receipts are Rs. 2,00,000/- and income as per books is Rs. 2,30,000 and Rs. 3,40,000 respectively.

     

    Particulars

    Assessee 1

    Assessee 2

    Turnover

    12,00,000

    12,00,000

    Income u/s 44ADA @ 50%

    6,00,000

    6,00,000

    Income as per P&L a/c

    2,00,000

    3,00,000

    Income under PGBP head (whichever is lower)

    2,00,000

    3,00,000

    Income under IFOS head

    30,000

    20,000

    Gross Total Income

    2,30,000

    3,20,000

    Basic Exemption Limit

    2,50,000

    2,50,000

    To Maintain Books of Accounts u/s 44AA

    Not required

    Required

    To get Books of Accounts Audited u/s 44AB

    Not required

    Required

     

    Benefits availed by Assessee u/s 44ADA of Income tax act,1961:

     

    • Assessee can opt out of the scheme at any Assessment Year.
    • No need to maintain books of Accounts, if conditions satisfied as per section 44ADA.¬
    • No need to get books audited, if conditions satisfied as per section 44ADA.
    • Dis-allowances under section 37, 40, 40A, 43B are not applicable.

     

     

    E.g: Mr. Varun Sandesh, a film artist, had turnover of Rs. 10,00,000 and Income as per P&L a/c is Rs.

    4,23,000; had forgot to pay TDS on his Rent expense of Rs. 3,60,000 (i.e. paid for 6 months).

    Case:1 if opted under Section 44ADA, then Income under PGBP head will beRs.5,00,000/-(i.e. 10,00,000/- * 50%) and Dis-allowance u/s 40(a)(ia) is not applicable. (as provisions of section 44ADA applies not withstanding to anything contained in Section 28 to 43C)

    Case:2 If not opted u/s 44ADA, then for not deducting TDS, the Rent expense was dis-allowed to the extent of 30% u/s 40(a)(ia) Thus, income under PGBP head will be Rs. 4,23,000 + 1,08,000(3,60,000 * 30%) = Rs. 5,31,000/-

    • Any person opting for the presumptive taxation scheme under section 44ADA is liable to pay whole amount of advance tax on or before 15th March of the previous year. If he fails to pay the advance tax by 15th March of previous year, he shall be liable to pay interest as per section 234C.

    Filing of Return of Income:

    Any person opting for the Presumptive Taxation under section 44ADA is liable to file his Income Tax-Return in “ITR-4”.

    Due date for Filing of Return: 

    Any person opting for the Presumptive Taxation under section 44ADA is liable to file his Income Tax-Return on or before 31st July of the respective Assessment Year.

    Changes in ITR-4 for the Asst. Yr. 2018-19:

    Earlier Taxpayers opting for presumptive taxation scheme under section 44ADA were not required to maintain books of account and the old ITR 4 sought only 4 financial particulars of the business,

    • Total Creditors,
    • Total Debtors,
    • Total stock-in-trade and
    • Cash Balance.

    But, the new ITR-4 form seeks more financial details of Business such as

    • Amount of Secured/Unsecured Loans
    • Amount of Secured/Unsecured Advances
    • Fixed Assets
    • Capital Account etc. 

    Further, new ITR-4 seeks

    ?GSTINofthe assessee, and

    ?Turnoveras per GST returns filed by him.

    This additional information has been sought to end the wrong practice of reporting different turnovers in erstwhile Sales Tax Return and Income-Tax Return. If any difference is found in turnover reported in GST Return and ITR, Assessee can expect a notice from the Department to explain the mismatch in turnover.

    Conclusion: If a Profession specified u/s 44AA of Income Tax Act, 1961want to get relieved from the duty of maintaining books of accounts and also from Tax audit as per the Income Tax Act, 1961 ,whose gross receipts from such profession does not exceed Rs. 50,00,000 can opt unders ection 44ADA of Income Tax Act, 1961.

     

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