BUSINESS TAX PLANNING

By Group 7

-Miconi Shah ( 104125 )-Nirav Patel ( 104132 )- Rikin Jain ( 104145 )

- Seemul Patel ( 104150 )

Specified Professions – For the purpose of sec.44A legal, medical, engineering, architectural, accountancy, technical consultancy, or interior decoration or any other notified profession are specified profession

Non Specified Professions – A non-specified profession is a profession other than a “Specified profession”

When maintenance of books of accounts becomes compulsory[sec.44A]

Persons carrying on “specified profession” – If annual gross receipts do not exceed Rs 1,50,000 the taxpayer is required to maintain such books of account as may enable the Accessing Officer to compute his taxable income under the Income-tax Act.

Persons carrying on “non-specified professions” or any business – If annual income does not exceed Rs 1,20,000 and annual gross receipts/turnover does not exceed Rs 10,00,000 the tax payer is not required to maintain any books of account

Requirement of compulsory maintenance of books of account

Persons covered by sections 44AD, 44AE, 44BB, 44BBB – If it is claimed that business income is lower than the income computed under these sections on estimated basis, the tax payer will have to maintain such books of account as may enable the Accessing Officer to compute his taxable income

Cont…

The following persons are required to get their accounts compulsorily audited by C.A.

When audit of accounts by certain persons is compulsory [Sec.44AB ]

Different Tax Payers When they are covered by the provisions of compulsory audit under sec.44AB

A person carrying on business If total sales, turnover or gross receipt in business for the previous year(s) relevant to the assessment year exceed or exceeds Rs 60 lakh

A person carrying on profession

If his gross receipts in profession for the previous year(s) relevant to the assessment year exceeds Rs 15 lakh

Different Tax Payers When they are covered by the provisions of compulsory audit under sec.44AB

A person covered under section 44AE 44BB or 44BBB

If such persons claims that the profits and gains from the business are lower than the profits and gains computed under these sections

A person covered under section 44AD

If such person claims that the profits and gains from the business are lower than the profits and gains computed in accordance with the provisions of section 44AD( 1 ) and if his income exceeds the maximum amount which is not chargeable to tax

Cont…

Due date for getting books audited/submission of audit report and Form No.Different taxpayers

Audit Form No.

Statement particulars

Due date for getting books audited

Due date for submission of audit report

In case of person who carries on business or profession and who is required by or under any law to get his accounts audited

Form No. 3CA

Form No. 3CD

September 30 of the assessment year

September 30 of the assessment year

Different taxpayers

Audit Form No.

Statement particulars

Due date for getting books audited

Due date for submission of audit report

In case of person who carries on business or profession but not being a person referred to above

Form no. 3CB

Form No. 3CD

September 30 of the assessment year

September 30 of the assessment year

Cont…

Where an asset [ not an asset referred to in sec. 45(2)], which has become the property of an amalgamated company under a scheme of amalgamation, is sold after February 29, 1988 as stock-in-trade, then, in computing the profits and gains from the sale of such asset, the cost of acquisition of the asset to the amalgamated company shall be the cost of acquisition of the asset to the amalgamating company, as increased by the cost, if any, of any improvement made thereto and the expenditure incurred wholly and exclusively in connection with such transfer

Following are the special provisions for computation of cost of acquisition in certain cases under sec 43C

When an asset which has been acquired by the assessee on transfer, either by way of total or partial partition of a Hindu undivided family or under a gift or will or an irrevocable trust, is sold after Feb 29, 1988, as stock-in-trade, then, in computing the profits and gains from the sale of such asset, the cost of acquisition shall be the cost of any improvement made and the expenditure incurred wholly and exclusively in connection with such transfer including the payment of gift-tax, by the transferor or the donor

Cont…

Sec.44AD – In case of taxpayers engaged in a business

Sec.44AD is applicable only if following conditions are satisfied◦ Eligible Assessee-

- Eligible assessee for this purpose is a resident individual, a resident HUF or a resident partnership firm(not being a limited liability firm)

◦ Has not claimed some deductions- - The assessee has not claimed any deduction under

sections 10A,10AA,10B,10BA,80HH to 80RB in the relevant assessment year

Special provisions for computing income under sections 44AD and 44AE

◦ Eligible business –- The assessee should be engaged in any

business except the business of plying, hiring or leasing goods carriage referred to in section44AE

◦ Turnover –- Total turnover/gross receipts in the previous

year of the eligible business should not exceed Rs.60 lakh.

If the above conditions are satisfied, the income from the eligible business is estimated at 8% of the gross receipt or total turnover

The following points should be noted –The assessee can voluntarily declare a higher

income in his returnAll deductions under section 30 to 38, including

depreciation & unabsorbed depreciation are deemed to have been already allowed and no further deduction is allowed under these sections.

Consequences if Section 44AE is Applicable

An assessee opting for the above scheme shall be exempted from payment of advance tax related to such business

An assessee opting for the above scheme shall be exempted from maintenance of books of account related to such business as required under section 44Aa

◦ Is it possible to declare lower income – A taxpayer can declare his income to be lower than the deemed profits and gains

◦ The following consequences are applicable if the taxpayer declares his income to be lower

- The taxpayer will have to maintain the books of accounts as per section44AA if his total income exceeds the exemption limit.

- The taxpayer will have to get his books of accounts audited under section 44AB if his total income exceeds the exemption limit.

In the case of taxpayers engaged in the business of plying, leasing or hiring trucks.

Sec.44AE is applicable only if following conditions are satisfied

Condition 1◦ The taxpayer may be an individual, HUF, AOP, BOI,

firm, company, co-operative society, or any other person. He or it may be a resident or a non-resident

Condition 2◦ Taxpayer is engaged in the business of plying,

hiring or leasing goods carriage.

Section 44AE

Condition 3 –◦ Taxpayer owns not more than 10goods carriages

during PY. For this purpose, a taxpayer, who is in possession of goods carriage, whether taken on hire purchase or on installments and for which the whole part of the amount is payable is still due, shall be deemed to be the lower of such goods carriage.

Consequences if section44AE is applicable- Income to be calculated on estimated basis:

◦ Heavy goods carriage – - Rs.5000 for every month during which the goods

carriage is owned by the taxpayer

◦ Goods Carriage – - Rs4500 for every month during which the goods

carriage is owned by the taxpayer Estimated income is comprehensive :

◦ All deductions under section 30 to 38 including depreciation and unabsorbed depreciation, are deemed to have been already allowed and no further deduction is allowed under this section

Provision for maintenance of books of accounts :◦ Similar to section 44AD

Is it possible to declare Lower Income :◦ Similar to section 44AD

Other points to be noted – ◦ Section 44AE does not permit an assessee to

apply provisions of section 44AE in case of some lorries and to go for regular assessment on basis of books of account in respect of remaining lorries

◦ The Assessing Officer cannot apply provisions of section44AE for estimating income from truck plying, and making addition separately on account of sale proceeds of scrap because receipt from scrap is not a separate source of income.

Valuation of stock is vital factor in determining taxable income of an assessee from business, as correct profits cannot be ascertained unless the opening and closing stocks are valued correctly

Neither the Income-tax Act nor the Income-tax Rules prescribes or permits any particular method of valuation of stock

A assessee may value its stock either at cost price or at market price, whichever is less

Permissible methods of valuation of closing stock

The new method of stock valuation cannot be rejected merely because there would be loss of revenue in the year of change. What is relevant is to consider whether the method adopted is one of the recognized methods and further whether the changed method of stock valuation is followed consistently year after year

If valuation of closing stock is made on the basis of the lower of cost or market price, it can be done on the basis of individual method or global method

Cont…

The issue relating to whether the value of closing stock of the inputs, work-in-progress and finished goods must necessarily include the element for which MODVAT credit is available has been the matter of considerable litigation

Valuation of stock when MODVAT credit is available [Sec. 145A ]

By virtue of sec.145A, the valuation of purchase and sale of goods and inventory for the purpose of determining the income chargeable under the head “Profits and gains of business or profession” shall be

- In accordance with the method of accounting regularly employed by the assessee

- further adjusted to include the amount of any tax, duty, cess, or fee actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation

Cont…

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