DU SOL INCOME TAX Q6. What are the provisions for estimating the profits and gains of an assesse engaged in retail business under section 44AD

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Q6. What are the provisions for estimating the profits and gains of an assesse engaged in retail business under section 44AD? Also discuss the provisions of section 43B regarding certain expenditure allowed on actual payment basis?

 

Applicable Rate and Income Computation under Section 44AD

Eligible assessees who are willing to adopt the presumptive taxation scheme under the provisions of Section 44AD has to compute their income on the estimation basis. It is calculated at the rate of 8% of Gross receipts or total annual turnover of the business for the previous year. Assessee can even declare an income in his income tax return higher than the presumptive income shown as per the scheme.

 

For example, Mr. Lokesh is running a stationary shop whose turnover is Rs. 80 lakh for the previous year. He is willing to adopt the provisions of presumptive taxation scheme under Section 44AD of the Income Tax Act, 1961 with regards to taxation of his business. As per the provisions of Section 44AD, income will be computed on the basis of estimation at the rate of 8% of gross receipts or total turnover of the eligible business for the previous year. In this case, Mr. Lokesh having a stationary business with Rs. 80 lakh turnover (less than Rs. 2 cr as per the provisions of Section 44AD) can adopt the provisions of the scheme. And his annual presumptive tax will be Rs. 6.4 lakhs (i.e. 8% of 80 lakh).

 

Section 44AD Bare Act

Section 44AD deals with special provisions for computing profits and gains of business on presumptive  basis.

 

It is defined as under:

 

(1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to 8% of the total turnover/gross receipts recorded by the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum as declared by the assessee as presumptive income, shall be deemed to be the profits and gains of such business 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.

 

Provided that where the assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub-section (1) subject to the conditions and limits specified in clause (b) of section 40.

 

(3) The written down value of any asset used for the purpose of the business referred to in sub-section (1) 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) The provisions of sections 44AA and 44AB shall not apply in so far as they relate to the business referred to in sub-section (1) and in computing the monetary limits under those sections, the gross receipts or, as the case may be, the income from the said business shall be excluded.

 

(5) Nothing contained in the foregoing provisions of this section shall apply, where the assessee claims and produces evidence to prove that the profits and gains from the aforesaid business during the previous year relevant to the assessment year commencing on the 1st day of April, 1997 or any earlier assessment year, are lower than the profits and gains specified in subsection (1), and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee and determine the sum payable by the assessee on the basis of assessment made under subsection (3) of section 143.]

 

(6) Notwithstanding anything contained in the foregoing provisions of this section, an assessee may claim lower profits and gains than the profits and gains specified in sub-section (1), if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB.]

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