IN ORDER to significantly ease tax rules, Budget 2016-17 said small businesses with gross income up to Rs 2 crore can now use the presumptive taxation scheme, doubling it from the existing ceiling of Rs 1 crore. So far available only to small businesses, the presumptive taxation scheme has been extended to professionals with gross income up to Rs 50 lakh.
This will ease tax compliance burden on small businesses and professionals. These changes will be effective from April 1, 2017.
Separately, for small enterprises with a turnover up to Rs 5 crore, Jaitley proposed to lower the corporate income tax rate to 29 per cent plus surcharge and cess for the next financial year from the current 30 per cent.
The presumptive taxation scheme is currently available, under Section 44AD of the Income Tax Act, for small and medium enterprises with turnover or gross receipts not exceeding Rs 1 crore.
In case of businesses, a sum equal to eight per cent of the total turnover or gross receipts, is deemed to be profits and gains of such business chargeable to tax.
“At present, about 33 lakh small business people avail of this benefit, which frees them from the burden of maintaining detailed books of account and getting audit done. I propose to increase the turnover limit under this scheme to Rs 2 crore, which will bring big relief to a large number of assesses in the MSME category,” Finance Minister Arun Jaitley said in his speech.
To keep the compliance burden minimum, the government has also allowed businessmen using presumptive taxation scheme to pay advance tax by March 15 of the financial year, as against the practice for other companies to pay advance tax in four installments.
Increase in the turnover limit would reduce the compliance burden of the small taxpayers and facilitate the ease of doing business, the finance ministry said in the Budget documents.
This tax scheme has been extended to professionals engaged in legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration.
Professionals with gross income up to Rs 50 lakh can use the scheme, which will presume profits being half of the gross receipt.
The scheme for professionals will apply to an individual, Hindu Undivided Family or partnership firm but not limited liability partnership firm, as per the Budget documents. Professionals opting for the scheme will not be required to maintain books of account and get the accounts audited.
The government has also proposed to enhance the threshold limit for audit of accounts from Rs 25 lakh to Rs 50 lakh for professionals.
If the taxpayer opts for the presumptive taxation scheme, he has to remain in that scheme for 5 years to avail the benefits.
“Further, if he does not offer the income as per the said scheme in any of the five years, he shall not be eligible to claim the benefit under the scheme for next 5 years,” Jaitley said.