Vide Finance Bill 2016, the Government has introduced presumptive taxation scheme for the persons earning professional income. The existing scheme of presumptive taxation is dealt under section 44AD of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), wherein the section provides for simplified taxation scheme for eligible persons engaged in certain eligible business only. Persons earning professional income were excluded from this list prior to this proposed amendment.
What is presumptive taxation scheme (PTS)? Presumptive taxation is a scheme under which one can file the return on the basis of 'presumed' income. Accordingly, under PTS, the professionals, whose gross receipts does not exceed fifty lakh rupees, and eligible businesses, as prescribed under the Act, can compute income on presumed/estimated basis under section 44ADA and Section 44AD of the Act, respectively, at a minimum prescribed rate.
AMENDMENTS BROUGHT ABOUT
Accordingly, the following changes in the Act have been introduced:
1. Presently, Section 44AA of the Act deals with the maintenance of accounts by certain persons carrying on profession or business. This section has been amended to the extent that from the 1st day of April, 2017, the following person shall maintain such books of account and other documents for total income in accordance with the provisions of this Act:—
"(iv) where the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year".
2. In Section 44AB of the Income-tax Act, also amendments have been proposed which will come into effect from the 1st day of April, 2017,—
i. in clause (b), for the words "twenty-five lakh rupees", the words "fifty lakh rupees" shall be substituted; Therefore from 1.04.2016, every person carrying on profession will, if his gross receipts in profession exceed fifty lakh rupees in any previous year will have to get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.
ii. in clause (d),—
a) for the word "business" wherever it occurs, the word "profession" will be substituted;
b) for the words, figures and letters "under section 44AD", the words, figures and letters "under section 44ADA" shall be substituted;
c) for the words "previous year", the words "previous year; or" shall be substituted;
iii. After clause (d), a new clause will be inserted, specifying that every person, fulfilling the clause (e) below, shall also get the accounts of such previous year audited as mentioned in para (i).
"(e) carrying on the business shall, if the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year,"
3. The Finance Bill has also introduced a new section after section 44AD of the Income-tax Act. The following section shall be inserted with effect from the 01.04.2017, namely:—
(1) 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 sub-section (1) of section 44AA and whose total gross receipts do not exceed fifty lakh rupees in a previous year, a sum equal to 50% 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".
(2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed.
(3) The written down value of any asset used for the purposes of profession shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.
(4) Notwithstanding anything contained in the foregoing provisions of this section, an assessee who claims that his profits and gains from the profession are lower than the profits and gains specified in sub-section (1) and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (1) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.'
In order to reduce the compliance burden of the small tax payers having income from profession and to facilitate the ease of doing business, this presumptive taxation regime has been proposed for persons carrying on the professions such as legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette and whose total gross receipts does not exceed fifty lakh rupees in a previous year, at a sum equal to 50% of the total gross receipts or as the case may be at a sum higher than the aforesaid sum earned by the assessee. The scheme will apply to such resident assessee who is an individual, Hindu undivided family or partnership firm but not Limited Liability partnership firm.
Also, under PTS, the assessee is exempt from paying advance tax under section 208 of the Act. Accordingly, the person availing the PTS does not have to estimate her income four times a year and pay advance tax accordingly. Instead, the person availing the PTS has to go through the exercise only once.