Special provision for computing profits and gains of business profession on presumptive basis in case of certain residents.

58(1)

The provisions of sections 26 to 54, to the extent contrary to this section, shall not apply to the specified business or profession mentioned in column B of the Table in sub-section (2)

58(2)

The profits and gains of any specified business or profession as mentioned in column B of the Table below, carried on by an assessee specified in column C of the said Table, having total turnover or gross receipts of business or profession during the tax year specified in column D and computed in the manner specified in column E thereof, shall be deemed to be the profits and gains of such business or profession chargeable to tax under the head “Profits and gains of business or profession”.

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58(3)

Any assessee mentioned in column C of the Table in sub-section (2), who claims that––

• (a) the profits or gains actually earned from the specified business or profession are lower than the profits or gains computed in the manner mentioned in column E of the said Table; and
• (b) whose total income exceeds the maximum amount which is not chargeable to tax, shall be required to–– (i) keep and maintain such books of account and other documents as required under section 62; and (ii) get the accounts audited and furnish a report of such audit as required under section 63.

58(4)

Any loss, allowance or deduction allowable under the provisions of this Act, shall not be allowed against the income computed in the manner specified in sub-section (1).

58(5)

For the purposes of sub-section (2)(Table: Sl. No. 2), 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 section 35(f).

58(6)

The written down value of any asset used for the purposes of specified business or profession shall be computed as if the assessee mentioned in column C of the Table in sub-section (2) had claimed and was actually allowed depreciation thereon for each of the relevant tax years.

58(7)

Where an eligible assessee declares profit for any tax year as per the provisions of sub-section (2) (Table: Sl. No. 1) and he declares profit for any of the five tax years succeeding such tax year in contravention of the provisions of sub-section (1), then he shall not be eligible to claim the benefit of the provisions of this section for five tax years subsequent to the tax year in which the profit has not been declared as per the provisions of the said sub-section.

58(8)

Irrespective of anything contained in foregoing provision of this section, where provisions of sub-section (7) are applicable to an eligible assessee and his total income exceeds the maximum amount which is not chargeable to income-tax, he shall be required to keep and maintain such books of account and other documents as required under section 62(2) and get them audited and furnish a report of such audit as required under section 63.

58(9)

For the purposes of sub-section (2) (Table: Sl. Nos. 1 and 3), the receipt of amount or aggregate of amounts by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the receipt in cash.

58(10)

In this section,––

• (a) “eligible assessee” means an individual, a Hindu undivided family, or a firm other than a limited liability partnership, who is resident in India, who–– (i) has not claimed any deduction under section 141; or (ii) has not claimed any deduction under Chapter VIII-C for the relevant tax year; or (iii) does not carry on specified profession as defined in section 62(1)(a), and (c); or (iv) does not earn any income in the nature of commission or brokerage; or (v) does not carry on any agency business;
• (b) “specified assessee” means an individual or a firm, other than a limited liability partnership, who is a resident in India;
• (c) “limited liability partnership” shall have the same meaning as assigned to it in section 2(n) of the Limited Liability Partnership Act, 2008;
• (d) the expressions “goods carriage”, “gross vehicle weight” and “unladen weight” shall have the same meaning as respectively assigned to them in section 2 of the Motor Vehicles Act, 1988;
• (e) “heavy goods vehicle” means any goods carriage, the gross vehicle weight of which exceeds 12,000 kilograms; and
• (f) an assessee, who is in possession of a goods carriage, whether taken on hire purchase or on instalments and for which the whole or part of the amount payable is still due, shall be deemed to be the owner of such goods carriage.

Explanation

Section Summary:

This section introduces a presumptive taxation scheme for certain resident taxpayers engaged in specified businesses or professions. It allows eligible taxpayers to compute their taxable income based on a presumptive method, rather than maintaining detailed books of account. The section overrides other provisions of the Income Tax Act (Sections 26 to 54) to the extent they conflict with this scheme.

Key Changes:

1. Presumptive Taxation for Specified Businesses/Professions: The section introduces a simplified method for computing taxable income for certain businesses/professions listed in the table under sub-section (2).
2. Mandatory Audit for Lower Profits: If an assessee claims that their actual profits are lower than the presumptive income and their total income exceeds the tax-free limit, they must maintain books of account and get their accounts audited.
3. Exclusion of Losses/Deductions: No losses, allowances, or deductions are allowed against income computed under this presumptive method.
4. Penalty for Non-Compliance: If an assessee fails to declare profits as per the presumptive method for any year, they lose the benefit of this scheme for the next five years.
5. Cash Receipts Definition: Receipts through non-account payee cheques or bank drafts are treated as cash receipts for certain businesses.

Practical Implications:

1. Simplified Compliance: Eligible taxpayers can avoid maintaining detailed books of account and computing income based on actual profits. Instead, they can declare income at a presumptive rate.
2. Audit Requirements: Taxpayers claiming lower profits than the presumptive income must comply with audit requirements under Sections 62 and 63.
3. Impact on Firms: For firms, salary and interest paid to partners are deductible from the presumptive income, subject to limits under Section 35(f).
4. Depreciation Calculation: Written down value of assets is computed as if depreciation had been claimed, even if it wasn’t.
5. Loss of Benefits: Non-compliance with the presumptive method can lead to disqualification from the scheme for five years.

Critical Concepts:

1. Eligible Assessee: Defined as resident individuals, Hindu Undivided Families (HUFs), or firms (excluding LLPs) who meet specific criteria (e.g., no deductions under Section 141 or Chapter VIII-C, no income from commission/brokerage, etc.).
2. Specified Assessee: Includes resident individuals or firms (excluding LLPs).
3. Presumptive Income: Income is computed based on a fixed percentage of turnover or gross receipts, as specified in the table under sub-section (2).
4. Non-Account Payee Cheques/Drafts: Treated as cash receipts for certain businesses, impacting compliance with cash transaction limits.

Compliance Steps:

1. Determine Eligibility: Check if the business/profession falls under the specified categories in the table under sub-section (2).
2. Compute Presumptive Income: Calculate income based on the prescribed percentage of turnover or gross receipts.
3. Maintain Records: If claiming lower profits, maintain books of account and get accounts audited.
4. File Returns: Declare income as per the presumptive method in the tax return.
5. Avoid Non-Compliance: Ensure profits are declared as per the presumptive method to avoid disqualification from the scheme.

Examples:

1. Example 1: A small transport business owner with a turnover of ₹50 lakh can declare income at 8% of turnover (₹4 lakh) under the presumptive scheme, without maintaining detailed books of account.
2. Example 2: A firm paying ₹2 lakh as salary to partners and ₹1 lakh as interest can deduct these amounts from the presumptive income, subject to limits under Section 35(f).
3. Example 3: If a taxpayer receives ₹10 lakh through a non-account payee cheque, it will be treated as a cash receipt for the purpose of this section, potentially impacting compliance with cash transaction limits.