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Broadening the tax base is
important to tax policy reform. Presumptive taxation involves lumpsum levies on
certain small-scale business activities to whom Section 44AB is not applicable.
The assessment of taxes through indicators or proxies help estimate a taxpayer’s
income (estimated Income); and the estimation of minimum income irrespective of
a taxpayer’s actual level of business activity (presumptive minimum income).
Thus Sections 44AD, 44AE and 44AF of the Income-tax Act, 1961, provide for
estimating the income under the head “Profits and gains of business and
profession” in the cases of certain assessees. The following special provisions
are made as per the Income-tax Act, 1961 for calculating the income on
presumptive basis for those assessees :
Special provision for
computing profits and gains of business of civil construction, etc. (Section
44AD) (Applicable upto A.Y. 2010-11)
Applicability :
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Section 44AD applies to all the
assessees engaged in the business of civil construction or supply of
labour for civil construction and whose gross receipts of such
activities do not exceed Rupees forty lakhs.
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Explanation : .For the purposes of
this section, the expression civil construction includes
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The construction or repair of any
building, bridge, dam or other structure or of any canal or road;
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The execution of any works contract.
Presumptive income
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Profit for the purpose of this section
shall be a sum equal to 8% of the gross receipts paid or payable to the
assessee or, a sum higher than the aforesaid sum as declared by the
assessee voluntarily in his return of income.
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No further deductions allowed :
Once the income is declared under this section on Presumptive basis, all
the deductions allowable under the provisions of sections 30 to 38
(including depreciation on assets) shall be deemed to have been already
allowed, and no further deduction under those sections shall be allowed.
However in case of assessee being firm, salary and interest paid to the
partners shall be allowed as deduction out of such presumptive income
subject to conditions and limits specified in clause (b) of section 40.
Lower Income and
consequences
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Income lower than the presumptive income :
Where the assessee declares lower profits and gains than the profits and
gains computed on presumptive basis as above, he shall be required to keep
and maintain books of account and other documents as required under
sub-section (2) of Section 44AA and shall also be liable to get his
accounts audited and furnish a report of such audit under Section 44AB.
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Turnover not to be included in other
receipts : Where the assessee chooses to declare income on the basis of
provisions of this section, the total turnover of the said business or the
income as the case may be shall not be included in the turnover of other
business or the income from the said business if any carried on by the
assessee, for the purpose of provision of Sections 44AA and 44AB of the Act.
The provisions of Section 44AD w.e.f. A.Y. 2011-12
shall be substituted as under;
Applicability :
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Section 44AD shall apply to an
individual, Hindu undivided family or a partnership firm (excluding limited
liability partnership firm ) who is resident in India and engaged in
eligible business and has not claimed any deduction under any of the
sections 10A, 10AA, 10B, 10BA or deduction chapter VIA under heading ‘C’ in
the relevant assessment year.
For the purpose of this
Section Eligible Business means:
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Any business (save and
except the business of plying, hiring or leasing goods carriages
referred u/s 44AE) whose total turnover or gross receipt in the previous
year does not exceed an amount of rupees forty lakhs
Presumptive income
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Profit for the purpose of this section
shall be a sum equal to 8% of the gross receipts of the assessee or, a
sum higher than the aforesaid sum as declared by the assessee
voluntarily in his return of income.
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No further deductions allowed :
Once the income is declared under this section on Presumptive basis, all
the deductions allowable under the provisions of sections 30 to 38
(including depreciation on assets) shall be deemed to have been already
allowed, and no further deduction under those sections shall be allowed.
However in case of assessee being firm salary and interest paid to the
partners shall be allowed as deduction out of such presumptive income
subject to conditions and limits specified in clause (b) of section 40.
Lower Income and
consequences
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Income lower than
the presumptive income : Where the assessee declares lower profits
and gains than the profits and gains computed on presumptive basis as
above, he shall be required to keep and maintain books of account and
other documents as required under sub-section (2) of Section 44AA
and shall also be liable to get his accounts audited and furnish a
report of such audit under Section 44AB.
Special provision for
computing profits and gains from the business of Goods Carriages (Section 44AE)
applicable upto A.Y. 2010-11)
Applicability
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Section 44AE applies to all the
assessees, engaged in the business of plying, hiring or leasing goods
carriages, whether a heavy goods carriage or other than a heavy goods
carriage owned by the assessee.
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The expressions goods carriage and heavy
goods carriages have been assigned the meaning taken from section 2 of
The Motor Vehicles Act, 1988.
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This Section applies only to assessee
owning not more than ten goods carriage vehicles (at any time during the
financial year). For the purpose of this section the assessee, who,
possesses the vehicles, taken on hire purchase or on installment basis
and for which the whole or part of amount payable for the purchase of
said vehicles is still balance would be deemed to be the owner of such
vehicle and it would be taken into account while taking the number of
vehicles owned. However it is not applicable to the assessee who
operates such vehicles taken on hire.
Presumptive Income
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In either case the taxpayer can declare
his income from such goods carriage at a rate higher than that specified
above.
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No further deductions allowed :
Once the income is declared under this section on Presumptive basis, all
the deductions allowable under the provisions of sections 30 to 38
(including depreciation on assets) shall be deemed to have been already
allowed, and no further deduction under those sections shall be allowed.
However in case of assessee being a firm, salary and interest paid to
the partners shall be allowed as deduction from such presumptive income
subject to conditions and limits specified in clause (b) of section 40.
Lower Income and consequences
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Income lower than the presumptive
income: Any assessee declaring lower profits and gains than the
profits and gains specified under this section shall be liable keep and
maintain such books of account and other documents as required under
sub-section (2) of section 44AA and shall also be liable to get
his accounts audited and furnish a report of such audit as required
under section 44AB.
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Turnover not to be included in other
receipts : Where the assessee chooses to declare income on the basis
of provisions of this section, the total turnover of the said business
or the income as the case may be shall not be included in the turnover
of other business or the income from the said business if any carried on
by the assessee, for the purpose of provision of sections 44AA and 44AB
of the Act.
Special provision for computing profits and gains
of retail business (Section 44AF)
Applicable upto
A.Y.2010-11
Applicability
Presumptive Income
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Profit as per this provision would be a
sum equal to 5% of the total turnover of the assessee from such business
of retail trade or as the case may be a sum higher than the aforesaid
sum as declared by the assessee voluntarily in his return of income and
the same shall be chargeable to tax under the head Profits and gains of
business or profession:
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No further deductions allowed :
once the income is declared under this section on Presumptive basis, all
the deductions allowable under the provisions of sections 30 to 38
(including depreciation on assets) shall be deemed to have been already
allowed, and no further deduction under those sections shall be allowed.
However in case of firm, salary and interest paid to the partners shall
be allowed as deduction subject to conditions and limits specified in
clause (b) of section 40.
Lower Income and
consequences
Turnover not to be
included in other receipts
Where the assessee chooses
to declare income on the basis of provisions of this section, the turnover
of the said business or income as the case may be shall not be included in
the turnover or income of other business if any carried on by the assessee,
for the purpose of provision of section 44AA or 44AB of the Act.
Other provisions applicable
to presumptive income under this chapter
Aggregation of Income
• For the purpose of
computing total income, the income from the specified business as above
provision/s shall be aggregated with the other incomes if any of the
assessee from any other business or under any other heads of income, in
accordance with the normal provisions of the Income-tax Act, 1961.
Chapter VIA deductions
Losses from other
business
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