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ABCAUS Excel for Chartered Accountants

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Chartered Accountants

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Increase in threshold limit for presumptive taxation scheme for persons having income from business.

The existing provisions of section 44AD provide for a presumptive taxation scheme for an eligible assessee engaged in an eligible business having total turnover or gross receipts not exceeding rupees one crores. A sum equal to eight per cent. of the total turnover or gross receipts or higher sum as declared shall be deemed to be profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession".

Eligible assessee - defined as an individual;, HUF or a partnnership firm who is resident but excluding Limited Liability Partnership (LLP)firm.

Eligible business-  defined as any business except playng, hiring or leasing goods carriages as referred in in section 44AE and whose turnover/gross receipts do not exceed 1 crores rupees.

Under the scheme, the assessee will be deemed to have been allowed the deduction under sections 30 to 38 of the Act. Further, the eligible assessee can report income less than the deemed income of eight per cent. of the total turnover or gross receipts not exceeding rupees one crore provided he maintains books of accounts as per section 44AB. Further in the case of an eligible assessee, so far as the eligible business is concerned, the provisions of Chapter XVII-C shall not apply.

The Budget 2016-17, in order to reduce the compliance burden of the small tax payers and facilitate the ease of doing business, has proposed to increase the threshold limit of one crore rupees specified in the definition of "eligible business" to two crore rupees.

It is also proposed that the expenditure in the nature of salary, remuneration, interest etc. paid to the partner as per clause (b) of section 40 shall not be deductible while computing the income under section 44AD as the said section 40 does not mandate for allowance of any expenditure but puts restriction on deduction of amounts , otherwise allowable under section 30 to 38.

It is also proposed that where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five consecutive assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1).

Example:

Assessment Year

Presumptive Taxation

Turnover

Profits

AY 2017-18

Yes

1 crores

8 lakhs

AY 2018-19

Yes

1 crores

8 lakhs

AY 2019-20

Yes

1 crores

8 lakhs

AY 2020-21

No

1 crores

4 lakhs

AY 2021-22

Not eligible

 

 

AY 2022-23

Not eligible

 

 

AY 2023-24

Not eligible

 

 

AY 2024-25

Not eligible

 

 

AY 2025-26

Not eligible

 

 

In the above example since the assessee has not offered income in accordance with the provisions of section 44AD for five consecutive assessment years, after Assessment Year 2017-18, he will not be eligible to claim the benefit of section 44AD for next five assessment years i.e. from Assessment Year 2021-22 to 2025-26.

Further as the turnover limit of presumptive taxation scheme has been enhanced to rupees two crore, it is proposed to provide that eligible assessee shall be require to pay advance tax. However, in order to keep the compliance minimum in his case, it is proposed that he may pay advance tax by 15th March of the financial year.

These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years.

Section 44AD turnover threshold limit increased to Rs. 2crores FY 201617. Presumptive Taxation to be maintained for 5 Years to be eligible assessee

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