Deleting of section 44 ad(2) of income tax act in this budget.
D.G. Mohan
(Querist) 03 March 2017
This query is : Resolved
In this budget sec 44 AD(2) has been deleted and the consequences of this is illustrated by this example.
Suppose a partnership firm makes turnover of Rs 25 lakhs.
As per sec 44 AD presumptive rate of 8% net profit amounts to Rs2 lakhs.
Upto last year out of Rs 2 lakhs there was provision for deducting partners salary, remuneration and interest in this amount upto a maximum of 90% as per sec44 AD(2).
Hence taxable income was only for 10% of 2 lakhs which amounts to Rs20000.
So Income tax payable was 30% of 20000 which is Rs 6000 only.
But in this budget sec44 AD(2) has been deleted which means salary, remuneration and interest paid to partners would also not be allowed to be claimed as a deduction.
Hence from this year taxable income will be Rs 2 lakhs .
Income tax payable will be 30% of 2 lakhs which will be Rs 60000.
Please observe that income tax paid has increased by 10 times from Rs 6000 to Rs 60000.
Our next alternative is to audit our books of account and lessen our tax burden. But the basic purpose of introducing presumptive taxation scheme as above gets defeated and all small tax payers will be forced to maintain books of accounts and get audited their accounts, which is also costly affair. When an individual gets exemption from IT upto Rs 2.5 lakhs, why a firm has no benefit like them.
Whether my assessment of problem is correct. If correct why no one is worried. Please clarify
D.G. Mohan
(Querist) 06 March 2017
Why no reply to this point. Is it correct or not? I think that this should be rectified to avoid paying more taxes.
This deletion is beneficial to auditors as more people come to audit.
