The earnings tax laws provide a presumptive scheme of taxation for specific experts. There are lots of doubts about what is the precise scheme and no matter whether just about every experienced can opt for it. I intend to clarify the presumptive scheme of taxation for experienced in this post.
What is presumptive taxation scheme
As per Section 44ADA of the Income Tax Act, specified experts have the choice to opt for a scheme beneath which they can provide 50% of their gross experienced receipts as taxable earnings from the profession offered the gross receipts from the profession does not exceed Rs 50 lakh in the relevant year. So, in case your gross receipts exceed this threshold limit, you can’t opt for this scheme.
If your net earnings from the profession is significantly less than 50% of receipts and you do not want to provide the minimum 50% as your earnings, you can definitely do so, but in that case you will have to retain your books of accounts and get these accounts audited from a Chartered Accountant for that year. However, you want not get your accounts audited in case total earnings from all the sources which includes the experienced earnings does not exceed the quantity of fundamental exemption limit. Presently the fundamental exemption limit is Rs 2.50 lakh for these who have not completed 60 years of age.
Who can avail this scheme?
This scheme is readily available only to a resident person or a partnership firm engaged in a specified profession but not to a restricted liability partnership (LLP). So, non-resident people and partnership firms or an HUF are not eligible to opt for this scheme.
It is not that all the self-employed not engaged in any enterprise activity are entitled to opt for this scheme. It is only the eligible assesses who are engaged in the specified professions who can opt for this scheme. Only a couple of professions have been specified for this goal. These specified professions include things like medical doctors, lawyers, Chartered Accountants, Company Secretaries, architects, engineers, technical consultants, interior decorators, specific persons engaged in the film business, IT experts, amongst other people.
Due to sheer ignorance, numerous working as a consultant opt for this scheme devoid of realizing that they are not eligible for this presumptive tax scheme. So, all journalists who are either working as freelancers or consultants are not eligible for this scheme. Likewise, all insurance coverage advisors, mutual fund distributors or investment advisors can’t opt for this scheme. All the persons who are working as consultants with their ex-employer can’t opt for it unless they have the specified experienced qualification.
Law as regards upkeep of books of accounts in case you opt for the scheme
In case you are eligible for this scheme and opt for it, the law exempts you from the requirement to retain your books of account for that year. What it basically signifies that you are saved the hassles of writing the books of accounts as effectively as preserving the vouchers for expenditures. However, in case you are registered beneath the Goods and Service Tax Act, you might nonetheless have to retain your books of account and preserve the important documents. So, person medical doctors and lawyers who are not covered beneath GST are completely absolutely free from the tedious activity of preserving the books of accounts.
Though you are exempted from requirement to retain your books of accounts, but in my opinion, you will nonetheless have to preserve relevant records which can enable you substantiate the quantity of experienced receipts claimed by you throughout the year.
What if your actual earnings are greater than 50%?
In case your actual earnings from profession is more than 50%, in my opinion, you have to provide such greater percentage of your experienced receipts as your experienced earnings as the law does not just stipulate the fixed percentage but has provision for providing such greater percentage as your earnings. Since you are not essential to retain your books of accounts, it might be typically tough to prove that your actual earnings is more than 50% of your gross receipts.
However, greater earnings can be quickly established from the investments made and private expenditures incurred by you by way of the banking channel. So, for these who carry out their significant transactions by way of the banking channel, it will not be attainable to hide the reality of actual earnings getting greater than 50% of gross receipts. So, prior to you determine to opt for the bare minimum percentage of 50% which you have to provide as earnings, have a look at the aggregate of investments made and private expenditures incurred by you throughout the year. Such concealed earnings might be taxed as unexplained quantity at 60% along with interest and penalty in case the division is capable to prove it conclusively.
Can I adjust the choice later on?
From the present year a salaried individual has the choice to opt for in between the old tax regime, providing different deductions, exemptions, but with greater returns, and the new tax regime, devoid of such exemptions and deductions but providing the decrease price, just about every year. However, as persons engaged in a profession or enterprise can’t opt out of the new scheme when you have exercised the choice till you cease to have the enterprise earnings. However, in case of the presumptive scheme of taxation, a experienced can exercising the choice to have or not to have the presumptive taxation scheme just about every year.
I am sure the discussion will enable you far better realize the presumptive scheme of taxation for experts.
(The author is a tax and investment professional, and can be reached at [email protected])