Govt. Agencies and Taxation | Comments (0)
Are you a professional, freelancer or
consultant who is tired of paying too much income tax? Then this article is for
you!
To reduce the burden of compliance of small
taxpayers, the Indian Government provides the presumptive taxation scheme which
is easy to comply with. The benefit of this scheme was earlier limited to only
specified businesses but now the government has extended that facility to
Professionals also. A new section has been introduced in the Income Tax Act -
Section 44ADA, w.e.f AY 17-18 that aims at simplifying the tax compliance of
professionals, particularly small professionals so that it facilitates ease and
efficiency in carrying out their professional obligations.
Under this scheme, professionals whose total
gross receipts are not more than Rs. 50 Lakhs in a financial year (April –
March) can file their return declaring 50% of gross receipt as income and after
deductions of section 80, they can pay tax on balance amount.
Who can avail presumptive taxation scheme?
This scheme u/s 44ADA can be availed by freelancers, professionals, and consultants who earn an income by providing their services and expertise. The following are considered professionals who can use this scheme:
Further, this scheme is applicable only to
resident assessee that includes individual, HUF or partnership but not a
limited liability partnership firm.
How will professionals save?
For example, Mr. Jagdish Chand is a
successful architect. His total gross income for the FY 2016-17 is Rs. 45
Lakhs. In normal course of things, taxable income will be Rs. 35 Lakhs.
In case of no presumptive taxation scheme, Jagdish will pay tax on Rs. 35 Lakhs that will amount to following:
However, if Jagdish opts for presumptive
taxation scheme, his taxable income will only be Rs.22.5 Lakhs.
Tax liability under presumptive taxation would be:
Therefore, Mr. Jagdish Chand will save
Rs.3,75,000 on income tax under presumptive taxation scheme. Furthermore, he
can claim all Section 80 tax-saving deductions and investments over and above
the presumptive taxation scheme.
What Deductions are allowed in the Scheme u/s
44ADA?
Following deductions are allowed under the section 44ADA:
a)All deductions from sections 30 to 38 (including depreciation and un-absorbed depreciation / allowances) shall be deemed as allowed and no further deduction is allowed under any of these sections.
b)Written down value (WDV) of depreciable assets shall be recomputed deducting depreciation which is deemed as allowed
Maintaining books of account:
The taxpayer would also NOT require to:-
a)Maintain books of account under sub-section 1 of Section 44AA, or
b)Get the accounts audited under section 44AB
But, if an assessee who claims that his
profits and gains from the profession are lower than 50% of gross receipts and
his total income exceeds the maximum amount which is not chargeable to
income-tax, then, he has to maintain books of account as per section 44AA and
get the audited and furnish report u/s 44AB.
Unlike Section 44AD for business, a
professional can easily opt in and out of the presumptive taxation scheme
without any restriction of 5 year period. This means a professional can opt
this scheme for a year and opt out of it the next year. He/she can further take
up the scheme again the third year.
What if you maintained proper books of
accounts and your net taxable income is less than half of your gross total
income?
This would mean your work related expenses
are higher and your taxable income is less than the total gross receipts. In
such a case, you professionals should not avail the presumptive taxation scheme
and pay tax on the actual taxable income after getting books audited.
Whether income from foreign clients should
also be included?
This is the general confusion with the
professionals providing services to foreign clients. The answer is simple YES.
As a resident of India, the income is received in India, hence your global
income will be taxed in India. If you are paying taxes on your foreign income
in that foreign country, then you can claim tax relief on taxed income (which
was taxed twice), while filing return in India.
Benefits of filing return under Presumptive
Tax Scheme:
¶ Consultants can file income tax return form
ITR-4 (old ITR-4S) - which is a much simpler form - instead of ITR-3 (old
ITR-4) - which is a relatively bulky form.
¶ Professionals can now file tax returns on
their own instead of paying a tax consultant.
¶ Usually, there are not many expenses to
declare for professionals, by declaring 50% of income as profit and balance as
expense, a lot of tax saving can be done.
What if you do freelancing work on the side?
These days we often see that salaried
employees with a regular day job provide freelance or consulting services in
their spare time. In such cases also you can opt for the benefit of presumptive
taxation scheme.
If you have a regular day job and you also do
freelancing or consulting, then you have two kinds of income i.e. salary income
and non-salary income. Since both are income under the laws, tax would be
charged on both. You can simply add your freelancing income to salary income to
compute the total taxable income. However, you can use the benefit of
presumptive taxation scheme and add only half of your freelance or consulting
income to your salary income.
For instance, if you salary income is Rs.22
lakh and your freelance income is Rs12 lakh, you can use presumptive taxation
and add only half of the latter to your total income. This way, your total
income for the year will be Rs.28 lakh.
Conclusion:
