While studying Section 44AD & 40A, I have noticed that both the sections read as under Section 40A say's (The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act) and 44AD say's (Notwithstanding anything to the contrary contained in sections 28 to 43C), my question here is, can a assessee having business income make payment above Rs. 20K and skip the disallowance U/s 40A since he has opted presumptive taxation scheme U/s 44AD. Or will Section 40A be applicable to the assessee who opts for presumptive income scheme U/s 44AD, Please help and oblige.
03 May 2016
Section 40A will not be applicable to the assessee who opts for presumptive income scheme u/s 44AD. Any thing contrary contained in sections 28 to 43C not applicable to those who opted for 44AD. U/s 44AD no books of accounts are required to be maintained so payment mode is irrelevant here.
03 May 2016
I agree to you Sir, but even no books of accounts are required to be maintained in Section 44AE, however in Section 40A it is cleary mentioned that (in case of payment made for plying, hiring or leasing goods carriages, the provisions of sub-sections (3) and (3A) shall have effect as if for the words "twenty thousand rupees", the words "thirty-five thousand rupees" had been substituted.). Should i go through your suggestion and allow payments in cash for more than 20k in a sister concern company where we have opted presumptive taxation scheme Section 44AD. Please suggest thanks for your help and advice.
03 May 2016
When you are paying tax on presumptive basis u/s 44ad, you are not claiming any deduction..
since you are not claiming any deduction in the first place, there is no question of disallowance...
03 May 2016
Sir i agreed, but then why in section 40A(3)(3a) it is mentioned that instead of Rs. 20k Rs. 35K is substituted for plying and hiring of goods carriages, section 44ae also talks about presumptive income. Since we are not claiming any deduction there should not be any question of disallowance in the case of Section 44AE too. For an example if a payment towards salary is made to a partner U/s 44AD which is allowed as a deduction against the income computed, will it be disallowed if it is paid in cash above 20K. We work according to the provisions given in IT Act but we should not get roped in by the AO considering the ambiguity in sections.
03 May 2016
Plz understand that both presumptive section are optional and not mandatory... if a person choose not to opt for presumptive scheme then he may pay tax under normal provision by getting his account audited.... in that case all provisions of section 28 to 43C would apply to him...
so don't get confused that why 40A talks about business of plying hiring leasing of goods carriage...
if such business opts for section 44AE then no provision would apply to him... however if he choose to pay tax under normal provisions then all provisions of section 28 to 43C (including 40A) would apply to him
further don't gets confused between 2nd proviso to 40A(3)/(3A) and section 44AE........ Suppose Mr. X is doing the business of goods carriage and Mr. Y is procuring the services from him. Now Section 44AE talks about the taxation of Mr. X whereas Proviso 40A(3)/(3A) talks about the allowance to Mr. Y..... Section 44AE is applicable in income earned from goods carriage.. whereas 40A(3)/(3A) would apply on expenses incurred on goods carriage... hence both section deals with different issues
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