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Relief for small businessmen and professionals

Parvatha Vardhini C | Updated on January 19, 2018

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The Easwar committee attempts to make things less complicated not only for salaried and pensioned class but also for assessees including individuals who are small businessmen and professionals.

Background: Taxation of presumptive income under Sec 44AD has been a popular provision for applicable small businesses. Under this, assessees including individuals whose total turnover or gross receipts in a year does not exceed ₹1 crore can declare their profit/gains at 8 per cent of the total turnover or gross receipts, pay tax on it and be done.

This would save them the headache of maintaining different books of accounts and/or getting it audited. But ironically, those who claimed their profits or gains to be lower than 8 per cent of their turnover had to maintain cumbersome accounts and other records and audit it to prove their case.

Recommendations: The committee eases things out on this front. First, it has recommended doubling the limit for eligibility under Sec 44AD to ₹2 crore to help more businessmen pay taxes hassle-free. Secondly, it gives relief to some of those who claimed their incomes to be lower than 8 per cent.

Accordingly, if the total turnover or gross receipts of their business is less than ₹40 lakh, they need not maintain accounts or get it audited.

Both these suggestions are a win for the tax authorities as well. The raising of the limit will help bring more business men into the presumptive taxation ambit. And, to avoid the hassle of having to maintain books and get it audited if they want to claim lower income, a chunk of them may prefer to have their income computed at 8 per cent of turnover, thus paying more taxes than what they may be liable for.

As regards the exemption for those with turnover less than ₹40 lakh, these small fishes will not be worth pursuing for the department.

On a turnover of ₹40 lakh, presumptive income @ 8 per cent will be ₹3.2 lakh. On ₹3.2 lakh, he would pay a maximum of ₹7,000 as tax (tax at 10 per cent on ₹70,000, which is ₹3.2 lakh minus basic exemption limit of ₹2.5 lakh). So whatever be the income he wants to declare below ₹3.2 lakh the department will stand to lose only a maximum of ₹7,000.

Less pain for professionals

Recommendations: Given the ease, the committee recommends a new presumptive taxation scheme for persons (including individuals) who are professionals.

So, those in the fields of law, medical, engineering, architecture, accountancy, technical consultancy or other specified professions whose gross receipts don’t exceed ₹1 crore can pay tax on a presumptive income of 33 1/3 per cent of the gross receipts.

Any claim for lower income would require accounts and audit, provided the gross receipts exceed ₹20 lakh.

Finally, under the current law, auditing is not compulsory for all those who maintain accounts. This may change in future as the committee has recommended that all those who are required to maintain books of accounts also have to compulsorily get it audited.

Published on February 14, 2016

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