Special provision for computation of income on presumptive basis in respect of certain business activities of certain nonresidents

61(1)

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

61(2)

The profits and gains of any specified business as mentioned in column B of the Table below, carried on by a specified assessee as mentioned in column C of the said Table during a tax year, shall be computed in the manner specified in column D thereof, and charged to income-tax for the said tax year under the head “Profits and gains of business or profession”.

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61(3)

For the purposes of (Table: Sl. Nos. 1 to 5) of sub-section (2), the specified assessee may claim that the profits actually earned from the specified business are lower than the business profits computed under sub-section (2), if,––

• (a) he keeps and maintains such books of account and other documents as required under section 62; and
• (b) gets his accounts audited and furnish a report of such audit as required under section 63.

61(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 (2).

61(5)

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.

61(6)

For the purposes of sub-section (2) (Table: Sl. No. 5) the provisions of this section shall not apply where the provisions of section 54 or 59 or 207 or 527 apply for the purposes of computing profits and gains or any other income referred to in the said sections.

61(7)

In this section, “plant” includes ships, aircrafts, vehicles, drilling units, scientific apparatuses and equipments, used for the purposes of the specified business as mentioned in sub-section (2) (Table: Sl. No. 5).

61(8)

For the purposes of sub-section (2) (Table: Sl. No. 6), resident company shall satisfy the following:—

• (a) it is establishing or operating electronics manufacturing facility or a connected facility for manufacturing or producing electronic goods, article or thing in India, under a scheme notified by the Central Government in the Ministry of Electronics and Information Technology; and
• (b) it satisfies the conditions prescribed in this behalf.

Explanation

Section Summary:

This section introduces a presumptive taxation scheme for certain non-residents and specified businesses. It allows the computation of income on a presumptive basis, meaning that income is calculated based on a predetermined formula or percentage rather than actual profits. This simplifies tax compliance for eligible businesses and ensures uniformity in tax treatment.

Key Changes:

1. Presumptive Taxation for Non-Residents: This section specifically targets non-residents and certain specified businesses, allowing them to compute income on a presumptive basis. This is a departure from the general requirement of computing income based on actual profits.
2. Exclusion of Other Provisions: Sections 26 to 54 of the Income Tax Act, which deal with deductions and allowances, do not apply to the specified businesses under this section unless they opt for actual profit computation.
3. Audit and Documentation Requirements: If a taxpayer claims that actual profits are lower than the presumptive income, they must maintain proper books of account and get their accounts audited.
4. No Loss or Deduction Allowed: Losses, allowances, or deductions under other provisions of the Act cannot be set off against income computed under this section.
5. Depreciation Treatment: The written-down value of assets used in the specified business is computed as if depreciation had been claimed and allowed in previous years.

Practical Implications:

1. Simplified Compliance: Non-residents and specified businesses can benefit from simplified tax calculations, reducing the burden of maintaining detailed financial records.
2. Audit Requirement for Lower Profits: If a taxpayer wants to claim that their actual profits are lower than the presumptive income, they must comply with audit and documentation requirements under sections 62 and 63.
3. No Set-Off of Losses: Businesses cannot offset losses or claim deductions against income computed under this section, which may increase their tax liability.
4. Specific Industries: The section applies to specific industries, such as electronics manufacturing, and requires compliance with government-notified schemes.

Critical Concepts:

1. Presumptive Taxation: A method where income is computed based on a predetermined formula or percentage, rather than actual profits. This reduces the need for detailed financial records.
2. Written-Down Value (WDV): The value of an asset after accounting for depreciation over its useful life. Under this section, WDV is computed as if depreciation had been claimed in previous years.
3. Specified Business: Refers to businesses listed in the table under sub-section (2), such as electronics manufacturing or other notified activities.
4. Non-Resident: A person or entity whose tax residency is outside India.

Compliance Steps:

1. Determine Eligibility: Check if the business falls under the specified categories listed in the table under sub-section (2).
2. Compute Presumptive Income: Calculate income as per the method specified in column D of the table.
3. Maintain Records: If claiming actual profits are lower than presumptive income, maintain books of account and get accounts audited as per sections 62 and 63.
4. File Tax Returns: Report income computed under this section in the tax return under the head "Profits and gains of business or profession."

Examples:

1. Example 1: A non-resident company operates an electronics manufacturing facility in India under a government-notified scheme. It computes its income on a presumptive basis as per the table in sub-section (2). If the company claims that its actual profits are lower, it must maintain proper books of account and get its accounts audited.
2. Example 2: A non-resident shipping company uses ships for its business. The written-down value of the ships is computed as if depreciation had been claimed in previous years, even if it was not actually claimed.

This section streamlines tax compliance for non-residents and specified businesses while ensuring that the government can collect taxes efficiently.