Income TaxPresumptive v. Real Income Concept Can Presumptive Section Provisions be disturbed on Real Income Principles?

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The Tax Publishers Income Tax--Presumptive v. Real Income Concept Can Presumptive section Provisions be disturbed on Real Income Principles? Srivatsan Ranganathan Presumptive taxation scheme was brought initially to facilitate and to encourage small assessees to at least come in the tax net by paying a meagre amount. Later, the scope of scheme got extended and now business assessees having turnover upto Rs. 2 crores can opt for presumptive taxation. For assessees having professional income this limit is Rs. 50 lakhs. As is the case with every good thing the bad comes as an attachment. Recently, some controversy erupted that as to whether Sections 68 to 69D can be invoked where presumptive income offered is lower than real income. In this brilliant write-up the learned author examines the presumptive taxation scheme vis-a-vis real income concept and opines that any presumptive tax is only an alternate scheme to tax income. They cannot dilute the principles of real income. It is open to the assessee as enshrined in the provisions to establish lower income and vice versa powers also remain with the revenue to question the presumed income especially if there are suspected concealed incomes or incomes which otherwise would have been taxable if not for presumptive taxation to have subsisted. A must read for all our esteemed readers. Recent, reality has been that the Income Tax Department has triggered scrutiny cases in several presumptive tax provision cases alleging under declaration of income or even wrong application of presumptive income. In short, the debate we are into can presumptive tax provisions be disturbed alleging real income principles and bring a higher income to tax in the realm of income tax provisions. 1. Fundamental scheme of presumptive taxation n The basic premise behind presumptive taxation is to enable an assessee offer income which is near as close an income which he would have made without going over the hassles of maintaining books of accounts or records. n While it is trite that an estimated/presumptive income can never be exactly to the dot equal to the actual real income; by bringing a near estimation for certain businesses at least the assessee is exonerated with the onerous liability of maintaining books is the basis of presumptive taxation. n It is based on the above principle that almost all presumptive tax provisions envisage that an assessee can maintain books of accounts and then report lower profit than the presumptively taxed amount. n Taxation being a complicated topic it may not be possible for commoners to understand the nuances of various provisions thus, presumptive income would fall as an in between basis of simpler scheme taxation. n So fundamentally it is an alternate tax computation mechanism vis a vis normal income tax computation provision and nothing more if we are to concur. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

Income Tax--Presumptive v. Real Income Concept

Can Presumptive section Provisions be disturbed on Real Income Principles?

Srivatsan Ranganathan

Presumptive taxation scheme was brought initially to facilitate and to encourage small assessees to at least come in the tax net by paying a meagre amount. Later, the scope of scheme got extended and now business assessees having turnover upto Rs. 2 crores can opt for presumptive taxation. For assessees having professional income this limit is Rs. 50 lakhs. As is the case with every good thing the bad comes as an attachment. Recently, some controversy erupted that as to whether Sections 68 to 69D can be invoked where presumptive income offered is lower than real income. In this brilliant write-up the learned author examines the presumptive taxation scheme vis-a-vis real income concept and opines that any presumptive tax is only an alternate scheme to tax income. They cannot dilute the principles of real income. It is open to the assessee as enshrined in the provisions to establish lower income and vice versa powers also remain with the revenue to question the presumed income especially if there are suspected concealed incomes or incomes which otherwise would have been taxable if not for presumptive taxation to have subsisted. A must read for all our esteemed readers.

Recent, reality has been that the Income Tax Department has triggered scrutiny cases in several presumptive tax provision cases alleging under declaration of income or even wrong application of presumptive income. In short, the debate we are into can presumptive tax provisions be disturbed alleging real income principles and bring a higher income to tax in the realm of income tax provisions.

1. Fundamental scheme of presumptive taxation

n The basic premise behind presumptive taxation is to enable an assessee offer income which is near as close an income which he would have made without going over the hassles of maintaining books of accounts or records.

n While it is trite that an estimated/presumptive income can never be exactly to the dot equal to the actual real income; by bringing a near estimation for certain businesses at least the assessee is exonerated with the onerous liability of maintaining books is the basis of presumptive taxation.

n It is based on the above principle that almost all presumptive tax provisions envisage that an assessee can maintain books of accounts and then report lower profit than the presumptively taxed amount.

n Taxation being a complicated topic it may not be possible for commoners to understand the nuances of various provisions thus, presumptive income would fall as an in between basis of simpler scheme taxation.

n So fundamentally it is an alternate tax computation mechanism vis a vis normal income tax computation provision and nothing more if we are to concur.