PRESUMPTIVE TAXATION UNDER INCOME TAX ACT,1961
Ø INTRODUCTION:
There is substantive increase in
small businesses with the growth of transport and communication and the general
growth of the economy. To smooth the procedures and taxation aspects for such
small industries a new aspect called Presumptive Taxation came in to force
under income tax act. Presumptive taxation under
income tax act, 1961 means a form of assessing tax liability using indirect
method/presumptive method or on assumption basis. The
term "presumptive" is used to indicate that there is a legal
presumption that the taxpayer's income is no less than the amount resulting
from application of the indirect method. It is the taxation based on ‘average
income’ instead of actual income which differs from usual rules based income. Presumptive methods of taxation are thought to be
effective in reducing tax avoidance as well as equalizing the distribution of the tax
burden.
The
interesting thing to know that all the section related to Presumptive taxation
is optional for the assesees or persons. It is not binding to any class of
business but once adopted all the provisions must be followed.
Ø APPLICABILITY :
The
applicability of presumptive taxation is to certain small class of business
activities to which section 44AB is not applicable i.e. section of Tax Audit. Thus,
this presumptive taxation is
applicable only to the income chargeable under the head of “profit and gains
from business and profession” means assesses, entitle to computation on
presumptive basis, cannot avoid tax on income from the head of other sources of
incomes by claiming it to be part of business income e.g. income on fixed
deposit. The act as covered the whole topic into certain sections and
provisions. The brief overview of such areas can be drawn in following chart.
Ø SECTIONS
IN BRIEF:
1.
44AD : Special provision for computing profit
of business under presumptive basis
§ This section is applicable
to individual, HUF, partnership firm excluding LLP and who covered in sec.44AE
playing, hiring, or leasing the goods carriages.
§ The business should
not covered under the provisions of 44AB i.e. turnover of the business should
not exceed Rs. 2 crore. [Amended in budget For A.Y.
2017-18 . earlier limit was Rs. 1 crore. As well as assessee must follow the
scheme for continuously for five years after adoption.]
§ The taxable income of
the business is calculated at 8% of total turnover of the business or any
higher amount voluntarily declared income.
§ Deduction under
section 80CCU & 80U shall be allowed. In case of partnership firm salary
and interest to partner shall be allowable for deduction. Any other expenditures
are not allowed for deduction.
§ Assessee shall not require
maintaining his books of account under section 44AA and books of account
audited under section 44AB.
2.
44ADA: Special
provision for computing profit of Professionals under presumptive basis
§ The benefit of Presumptive
Taxation which was earlier available only to specified businesses has now been
extended to Professionals. A professional who’s Total Gross Receipts do not
exceed more than Rs. 50 Lakhs in a financial year can claim benefit of this
Section from Financial Year 201617 onwards.
§ The Income of any person
making use of this Section would be assumed to be 50% of the Total Gross
Receipts for
the
year.
§ Assessee shall not require
maintaining his books of account under section 44AA and books of account
audited under section 44AB.
§ Deduction under
section 80CCU & 80U shall be allowed. In case of partnership firm salary
and interest to partner shall be allowable for deduction. Any other expenditures
are not allowed for deduction.
3.
44AE: Provision for
computation of income of estimated basis for people engaged in transport
business.
§ It is applicable to
that assesses who engaged in the business of hiring, playing, or leasing the
goods carriage but not more than 10 goods carriage at any time in previous
year. It is also apply to goods carriage taken on hire purchase or on
installment.
§ Estimated profit will
be taken as follows………
A.
Rs.5000/- per month or part of the month, per
truck, for heavy goods vehicle. (Heavy goods carriage means weight exceed 12MT).
However from 01.04.2015 the amount of profit is increased to Rs.7500/- as per the Finance (No. 2 ) Act, 2014.
B.
Rs.4500/- per month part of the month, per truck, for other
than heavy goods carriage
§ Assessee shall not
require maintaining his books of account under section 44AA and books of
account audited under section 44AB.
§ Deduction under
section 80CCU & 80U shall be allowed. In case of partnership firm salary
and interest to partner shall be allowable for deduction. Any other expenditures
are not allowed for deduction.
4.
44B: Provision for computing profits and gains
of shipping business in the case of non-
resident.
§ In the case of
non-residents, such profits and gains will be taken at an amount equal to 7.5%
of the amount paid or payable to the non-resident or to any other person on his
behalf on account of the carriage of passengers, live stocks,
mail or goods shipped at a port in India
also amount received or deemed to be received in India on account of the
carriage of passengers, live stocks,
mail or goods shipped at any port outside
India.
§ Section 172, which is
complete code itself, contains provisions for taxation of occasional shipping
business of non-resident in respect of profits made by them from carriage of
passengers, live stocks,
mail or goods shipped at a port in India.
5.
44BB: Special
provision for computing profit and gains in connection with the business of exploration etc., of mineral
oils.
§ It contains special
provisions for computation of taxable income of a non-resident assessee engaged
in business of providing services or facilities in connection with or supplying
plant and machinery on hire, used or to be used, in the prospecting for, or extractions
or production of mineral oils.
§ It provides that 10%
of the amount paid or payable to, all the amount received or receivable by the
assessee for provision of such services of facilities or supply of plant and
machinery shall be deemed to be the taxable income os such known resident
assessee
§ “Plant” means ships, aircraft, vehicles,
drilling units, scientific apparatus and equipment, used for the purpose of the
said business.
§ “Minerals” means
petroleum and natural gas.
6.
44BBA: Provision for
computing profit and gains of the business of operation of aircraft in the case
of non-resident.
§ It contains special
provisions for computing profits and gains of the business of operation of
aircraft of non-resident.
§ Taxable Income is
considered at the flat rate of 5% of the amount received or receivable for carriage
of passengers, live stocks, mail or goods from any place in India
or amount received or deemed to be received within India on account of the such
carriage from place outside India.
7.
44BBB: Provision for computing profit and gains of foreign companies engaged
in the business of civil construction etc., in certain turnkey power project.
§ The income of foreign
companies who are engaged in the business of civil construction or erection or
testing or commissioning of plant or machinery in connection with a turnkey
power project shall be deemed at 10% of the amount paid or payable to such
assessee or to any person on his behalf, whether in or out of India.
§ For this
purpose, the turnkey power project should be approved by the central
government.
§ It has also been
clarified that erection of plant or machinery or testing or commissioning
thereof will include lying of transmission lines and systems.
8.
44C :
Deduction of head office expenditure in the case of non-resident
§ In the case of Non-resident
who carry on business in India through their branches.
§ The deduction in respect of head office expenses will be limited to:
a)
An amount equal to 5 per cent of the “adjusted total income” for the relevant year: OR
b)
The actual amount
of the head office expenditure attributable to the business in India whichever
is less.
§ Adjusted total income
means a income before applying unabsorbed depreciation, unabsorbed business loss,
deduction u/s 80C to 80U.
§ “Head office
expenditure” means executive and general administration expenses incurred by
the assessee outside of India.
9.
44D: Provision for computing income by way of royalties etc., in the case of
foreign companies.
§ Royalties and fees
for technical services received from the government or an Indian concern by a
non-resident or a foreign company in
pursuance of an agreement entered in pursuance of an agreement entered into
after 31st march , 2003 shall be computed under the head “business
income” in accordance with the provisions of
the income tax act.
I.e. after allowing deduction for various permissible
expenses and allowances.
DIRECTOR OF INCOME TAX
(INTERNATIONAL TAXATION) vs. FMARINE CONTAINER LINES NV
In
the above case, it was held that :
v The
issue stands covered by the judgment in the case of Balaji Shipping UK Ltd.,
wherein it was held that slot hire agreements have been and remain a regular
feature of the shipping industry for decades. Whether they constitute a charter
of a portion of a ship or not is a different matter. In a case of the first
type, the carriage of goods by availing of the slot hire facility is an
integral part of the contract of carriage of goods by sea. Without it, the
enterprise / assessee would be greatly hampered in its business in relation to
international traffic, carriage of goods by sea.
v Enterprises
operating in any mode or manner, do not always ply their ships all over the
globe. Even if they do, their ships may not be readily available when required
on a particular route in connection with a contract of carriage of goods. It is
necessary, therefore in such cases for them to resort to slot hire agreements.
This enables them to transport the goods not on behalf of the owner of the
vessel which has granted them a slot hire facility, but in their own name on
behalf of their clients.
v The
contract of carriage of goods by sea is thus performed by such enterprises on a
principal to principal basis with their clients and not as agents of the owners
of the ships and/or their clients. The slot hire agreements are therefore, at
least indirectly, if not directly, connected and interlinked with and an
integral part of the enterprise's business of operating ships. Without availing
slot hire facilities, an enterprise would be unable to carry on its business of
operating ships in international traffic at all in many cases. They may well
loose much of their business. Even if business expediency is irrelevant to the
interpretation of the DTAA, it indicates the close nexus between slot hires and
the business of operation of ships in international traffic. If the DTAA is
construed to include activities directly or indirectly connected to the
operation of ships, it would include slot charters.
v By
availing the facility of slot hire agreements, the enterprise does not arrange
the shipment on behalf of the owner of the said vessel, but does so, on its own
account on a principal to principal basis with its clients. Such cases also
have a nexus to the main business of the enterprise of the operation of ships.
They are ancillary to and complement the operation of ships by the enterprise.
Decision :
Inland Haulage Charges earned by
Foreign Company from it’s
customers in respect of transportation of goods from Inland Container Depots (ICDs) to Port where
goods were loaded in ships for international traffic are part of income derived
from operation of ships, and are covered
under Article 8 of DTAA and thus not taxable as business profits in India.
Ø CONCLUSION:
As per the above discussion,
we can conclude that presumptive taxation is helpful to both –to the revenue
department as well as to the businessmen. Assessing officers can reduce their
work burden to the minimum level as there is simple method of assessment of incomes
and other assessment procedures. As there is no requirement of book keeping,
simple method tax calculations and other less burden of administrative and
other paper work, businessmen can also reduce their work burden to a great
extent. And as it is simple method of taxation it inspires the persons to pay
tax regularly. However, one interesting thing to know that though, it is easy
and simple way, it can become a way of tax evasion. As there is no book
keeping, businessmen can show wrong incomes and expenses in their profit and
loss account. This provision of this act
is beneficial to small scale industries working at a lower level and it also
encourages foreign industries to develop their business in India.
THANK YOU.
[Note: This article is done with the help of my senior article assistant named Princy Mehta. Thanks for your kind support.]
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