RECOMMENDATION TO INCREASE THE ELIGIBILITY UNDER THE PRESUMPTIVE SCHEME FOR SMALL BUSINESSES FROM THE EXISTING RUPEES ONE CRORE TO RUPEES TWO CRORE
The existing presumptive income scheme under section 44AD of the Income Tax Act is applicable to an individual, Hindu undivided family or a partnership firm (not to limited liability partnership). This scheme is quite popular amongst small businessmen who declare their income at 8% of the total turnover or gross receipts of the previous year. The limit was raised from rupees sixty lakh to rupees one crore by the Finance Act, 2012, w.e.f. assessment year 2013-14.
Keeping in view the popularity of the scheme and its impact on ease of doing business the committee recommends that the existing limit of rupees one crore be increased to rupees two crore. Consequential amendments in section 44AA have already been recommended.
It was also brought to the notice of the Committee that small tax payers who are not declaring income as per the presumptive income scheme find it difficult and cumbersome to maintain accounts. It is therefore recommended that a de minimus provision should be made exempting small businessmen and professionals from the mandatory requirement of maintaining books of accounts and getting them audited. These cases would involve a tax liability of maximum rupees seven thousand as the income expected to be declared by them @ 8% on the turnover of rupees forty lakhs is rupees three lakh twenty thousand and in any case rupees two lakh and fifty thousand is not chargeable to tax. The difference of rupees seventy thousand attracts tax of rupees seven thousand only at the existing rates.
4.2 AMENDMENTS RECOMMENDED
Based on the aforesaid recommendations the following amendments should be made in section 44AD of the Income-tax Act, 1961:-
A. The existing sub-section (5) should be substituted by the following sub-section
“(5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee who claims that his profits and gains from the eligible business are lower than the profits and gains specified in sub-section (1), shall be required to keep and maintain such books of account and other documents as required under sub-section (5) of section 44AA and get them audited and furnish a report of such audit as required under sub-section (2) of section 44AA provided the total turnover or gross receipts from such business exceed rupees forty lakhs.
B. The existing definition of eligible business given in clause (b) to the Explanation to section 44AD is to be amended as follows:
(b) "eligible business" means,—
(i) any business except the business of plying, hiring or leasing goods carriages referred to in section 44AE; and
(ii) whose total turnover or gross receipts in the previous year does not exceed an amount of two crore rupees.