Presumptive Tax u/s 44ADA-reduce tax rate, increase threshold says ICAI

Presumptive Tax u/s 44ADA-reduce tax rate, increase threshold says ICAI in its Pre-Budget Memorandum-2019 on Direct Taxes and International Tax to the Government

The Finance Act, 2016 has inserted a new section 44ADA which provide for special provision for computing profits and gains of profession on presumptive basis.

The sub-section (1) provides that: “Notwithstanding anything contained in sections 28 to 43C, in the case of an assessee, being a resident in India, who is engaged in a profession referred to in subsection (1) of section 44AA and whose total gross receipts do not exceed fifty lakh rupees in a previous year, a sum equal to fifty per cent. of the total gross receipts of the assessee in the previous year on account of such profession or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the assessee, shall be deemed to be the profits and gains of such profession chargeable to tax under the head “Profits and gains of business or profession”.

According to Pre-Budget Memorandum-2019 of ICAI, the threshold limit of Rs 50 lakhs is low and therefore provision may not achieve the intended objective of providing relief to professionals in the small and medium segment. Even the Income Tax Simplification Committee headed by Justice R V Easwar recommended a threshold limit of Rs 1 crore which appears to be a more justifiable limit considering the present economic conditions prevailing in the country.

At the same time, ICAI has opined that the rate of 50% is on the higher side and cause very high tax incidence on such professionals particularly since the scheme is intended to cover professionals with low gross receipts/total turnover resulting in low margins due to nature of work and high competition.

According to ICAI, because of the high rate of 50% a lot of professionals not opt for this scheme which defeat the very objective of introducing this provision. Also, the Income Tax Simplification Committee headed by Justice R V Easwar has recommended the rate of 33.33% of the receipts as the income from profession.

ICAI has thus suggested that:

(a) the threshold limit of Rs 50 lakh may be raised to at least Rs 1 crore

(b) the presumptive rate of income @ 50% of the total gross receipts may be reduced to 30%

Download ICAI Pre-Budget Memorandum 2019 Click Here >>