Letter to FM regarding Presumptive Income Scheme

Dear Finance Minister,

Regarding – Presumptive Income Scheme – Income from Profession

In present Budget 2016 – 17, you rightly made a proposal for a presumptive Income Scheme by introduction of Section 44ADA in the Income Tax Act, 1962. This proposal is based on recommendations of “Income Tax Simplification Committee” constituted by Central Government under the chairmanship of Justice R. V. Easwar, Former Judge of the Delhi High Court and Former President of the Income Tax Appellate Tribunal.

This Presumptive Income Scheme is applicable to every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette. [Proposed Section 44ADA read with Section 44AA(1)]

The Committee, in its report recommends the introduction of a presumptive income scheme whereby the income from profession will be estimated to be thirty three and one-third (33 1 /3%) of the total receipts in the previous year. The benefit of this scheme will be restricted to professionals whose total receipts do not exceed one crore rupees during the financial year. Recommended draft of charging sub – section read as under:

“Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eligible profession, the profits and gains of such profession chargeable to tax under the head “Profits and gains of business or profession” shall be deemed to be –

1. a sum equal to thirty three and one-third per cent of the gross receipts of the assessee in the previous year on account of such profession; or
2. a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee.”

This recommendation take care of two situations where:

1. Where a professional like Doctor or Lawyer do independent practice, have about 33.3% income out of gross receipt and 66.6% are direct or indirect expenses; and
2. Where a professional like Doctor or Lawyer work as retainer with some hospital or company, he may have more income and declare it.

However, new section 44ADA is proposed to be inserted in the Act to provide for estimating the income of an assessee who is engaged in any profession referred to in sub-section (1) of section 44AA such as legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette and whose total gross receipts does not exceed fifty lakh rupees in a previous year, at a sum equal to fifty per cent of the total gross receipts, or, as the case may be , a sum higher than the aforesaid sum earned by the assessee.

Present budget proposal cause hardship for practicing professional up to harassment:

• Presumptive income is too high to 50% of gross receipt of a professional like Doctor or Lawyer doing independent practice and does not cover genuine direct and indirect cost and expenses;
• This high presumption do not provide relief but forces most practicing professional to have all books of accounts and get them audited, which is not intention of proposed provision; and
• This proposal in current form does not contribute in ease of doing business/profession, which is stated goal of presented Government.

I urge you to amend this proposal under proposed Section 44ADA to have presumptive income 33.3% of gross receipt.

Yours Truly,
An Indian Taxpayer having Income from Profession