Direct Taxation in India

 

Union Budget for FY 21–22 introduced several proposals to benefit depositors, investors, and taxpayers. Finance minister Smt. Nirmala Sitharaman said that the tax system should put a minimum burden on the taxpayers. Specific Direct Tax proposals were introduced, providing relaxation to individual taxpayers and startups to some extent. The Finance minister surprised taxpayers by not announcing any change in income tax slab rates. She also did not disclose the proposal to introduce much-hyped Covid cess. In a significant move, the limit for tax audits under section 44AB has been increased from Rs 5 crore to Rs 10 crore (where 95% of payments and receipts are digitized), providing relief to many corporate houses.

Proposed amendments

1. Exemption for LTC cash scheme
Under the prevailing provisions of LTA, the exemption is out there for the worth of travel concession received by an employee from his/her former employer, leave visit anywhere in India. thanks to the Covid-19 situation, it’s proposed to supply tax exemption to cash allowance within the area of LTC.

2. Reduction in time for IT proceedings
The budget proposed a depletion within the time-limit for reopening tax proceedings to 3 years from the present six years to decrease the compliance burden. Except in severe minimization cases, assessment proceedings within the remainder of the problems shall be continued only up to 3 years, against the sooner deadline of six years.

3. Constitution of discourse resolution committee for little and medium taxpayers
Vivad se Vishwas scheme was executed last year to settle the pending disputes. Hence, to supply early tax certainty to small and medium taxpayers, it’s proposed to introduce a replacement scheme for preventing recent conflicts and settling the problems at the initial stage. those that are evaluated with a taxable income of up to Rs.50 lakh (for small and medium taxpayers) and any disputed payment of Rs.10 lakh can approach this committee under section 245MA. it’ll prevent new controversies and settle the problems at the initial stage itself.

4. Faceless proceedings
The minister of finance promised on 1st February 2021 to simplify tax administration, ease compliance, and reduce litigation over the approaching year. Provision is formed for faceless proceedings before the tax Appellate Tribunal (ITAT) during a jurisdiction-less manner.

5. Tax incentives for startups
In her third budget speech, minister of finance Smt. Nirmala Sitharaman unrolled tax incentives for startups concerning capital gains. The tax holiday for startups has been prolonged by another year up to 31st March 2022 i.e. an extension has been proposed in eligibility for claiming tax holidays and capital gains exemption for investment in startups by one year to March 2022.

6. Relief from the hardship of double taxation
When Non-Resident Indians return to India, they need issues concerning their accrued incomes in their foreign retirement accounts. it’s usually thanks to a discrepancy in taxation periods. They also face difficulties in getting credit for Indian taxes in foreign jurisdictions. there’s a scheme to notify rules for removing hardship for double taxation.

7. Employers to lose the deduction
In case the employee’s PF contribution was abstracted but not deposited by the employer, it’ll not be recognized as a deduction for the employer. it’s expected to place pressure on employers to deposit the employee’s Provident Fund contributions on time.

8. Increase within the Tax audit limit
The ‘Tax Audit’ limit under Section 44AB has increased from Rs.10 crores to Rs.5 crores, where 95% of business transactions are done digitally.

9. Section 44ADA Amendment
A scheme for presumptive taxation was initiated under section 44ADA from the FY FY 2016–17. Section 44ADA provides a simple method of taxation for little professionals. Section 44A claimed to all or any the assessees being residents in India. Now onwards, it claims only to the resident individual, Hindu Undivided Family (HUF) or a partnership firm aside from LLP.

10. Section 80EEA- Tax holiday extention
The tax holiday for reasonable housing projects has been extended until 31st March 2022. The tax exception has been granted for affordable rental projects.

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Presumptive Taxation Scheme under Section 44AD

 

Meaning of presumptive taxation scheme

As per Section 44, businesses and professionals are required to take care of the Books of Accounts under Section 44AA, once they fulfil certain criteria and obtain them audited under Section 44AB in every fiscal year for the aim of tax .

Particularly, to relax their burden of keeping Books of Accounts,

The small taxpayerscan avail simple tax payment scheme of ‘Presumptive Tax’ under Section 44AD, 44ADA and 44AE of tax Act 1961.

WhereBooks of Accounts and Auditing are Mandatory?
Conditions for Books of Accounts
As per Section 44AA of IT Act,Books of Accounts should be maintained by Businesses/Professionals (including those that are eligible under ‘Presumptive Tax Scheme‘), who fulfil these conditions:

Income quite INR 120000 in last three preceding years.
Total turnover/gross receipts of business/profession is quite INR 10,00,000 in any of the previous 3 years

Who are eligible for the applicability under Section 44AD?
The taxpayers are divided in two cases to form clear the eligibility criteria under this section for the scheme of presumptive taxation.

Individuals
The individual taxpayers who can avail the advantages of the scheme of presumptive taxation under Section 44AD are:
1. Any individual resident
2. Resident partnership firms ( apart from indebtedness Partnership Firms LLP)
3. Resident Hindu Undivided families (HUFs)

Businesses
The businesses who are eligible to realize the advantages of the scheme of presumptive taxation under the Section 44AD are:
1. Any business
2. The business whose annual turnover and therefore the gross receipts within the previous fiscal year doesn’t exceed the limit of Rs. 2 crores.

Taxpayers who are restricted to adopt the presumptive taxation
Some of the exceptions to the present scheme under the section 44AD are as follows:
1. Individuals who have claimed deductions under Section 10A, Section 10AA, Section 10BA, Section 10B, or other deductions in reference to individual incomes.
2. The companies involved in hiring, leasing goods carriages, agency business or playing referred in section 44AE.
3. Individuals or firms involved in any kind of profession, during which the income is earned in terms of commission or brokerage ( professionals can adopt the scheme of presumptive taxation under Section 44ADA).

Computation of income and presumption of rates of income under section 44AD
1. Under the scheme of presumptive taxation, the eligible taxpayer has got to compute his income on the idea of estimation. The presumptive income is calculated at the speed of 8% of the annual turnover or the gross receipts of the business of the last fiscal year .
2. However as per budget 2018,If the gross receipts or annual turnover is received through account payee cheque or draft or any device then the presumptive income are going to be calculated at the speed of 6% of the annual turnover of the last year. this is often through with the aim of promoting digital transactions. This special provision of reducing existing rate of calculation of presumptive income is completed to encourage small businesses to simply accept the digital payments and become organized and use the electronic clearing systems by a bank.

Presumptive Taxation Scheme to be opted for five years
If an assessee has opted or presumptive taxation under section 44AD, then he/she is required to choose an equivalent scheme for a continous period of 5 years. If, in any case, he/she did not do so,then he/she won’t eligible to choose the scheme for subsequent 5 years.

Maintenance of books of account under section 44AD
The major provision associated with presumptive taxation is to offer relief to small or medium sized taxpayers from maintaining books of accounts. The individual or firm who adopts presumptive taxation under section 44AD isn’t susceptible to maintain books of accounts. they’re also not required to urge their accounts audited under this scheme.

Payment of Advance Tax under Section 44AD
An assessee is susceptible to pay his or her advance tax during a single instalment on or before the 15th of March of each fiscal year if he or she opts for presumptive taxation under Section 44AD. For any default in paying the advance tax , the assessee are going to be charged interest under Section 234C.

What are taxable Profits and Gains?
As per the section 44AD an assessee who opted for presumptive taxation will compute his income as 8% of the entire turnover or gross receipts of the last year. An amount above the previously computed amount as presumptive income claimed by an assessee shall be termed as gains and profits of the business that’s chargeable to tax under the top “Profits and gains of business or profession”.Presumptive Taxation Scheme under Section 44AD

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