Introduction

1. To give relief to small taxpayers from the tedious job of maintenance of books of account and from getting the accounts audited, the Income-tax Act has framed the presumptive taxation scheme under section 44AD, section 44ADA and section 44AE of the Income-tax Act, 1961.

Section 44AD is applicable to specified persons engaged in specified business. In case of a person adopting the provisions of said section, income will not be computed in normal manner (i.e., Turnover less Expenses) but will be computed at 6% in case of amounts received by an account-payee cheque/bank draft or use of electronic clearing system through a bank account or 8% in other cases, of the turnover or gross receipt. Further, the presumptive scheme of section 44ADA is designed to give relief to small taxpayers engaged in specified profession. In case of a person adopting the provisions of section 44ADA, taxable income will not be computed in normal manner but will be computed at 50% of the gross receipts. Accordingly, in cases of presumptive taxation the taxable income is arrived at by applying specified percentage to the amount of turnover/gross receipts. Thus, the computation of turnover/gross receipts in such cases is of utmost importance.

A question that arises in this regard is whether the amount of GST on outward supplies would be included in the turnover/gross receipts or not for the purpose of computing the presumptive income? Further, in the return form prescribed for the persons opting for presumptive taxation scheme, viz, ITR 4 “Sugam” there is a GST shock in store for the taxpayers, which will also be discussed in the succeeding paras.

2. The term ‘gross receipts’/’turnover’ is not defined by the Income-tax Act, 1961. As such, the most prevalent opinion is that in absence of any definition the term ‘gross receipt’/’turnover’ the same should include GST and Cess which have been billed in the tax invoice issued in respect of supply of taxable goods or services or both.

This view is further corroborated from the fact that para 5 of the Income Computation and Disclosure Standard (ICDS) -2 says that the cost of purchase shall consist of purchase price including duties and taxes , freight inwards and other expenditures directly attributable to acquisition. Trade discounts, rebates and other similar items are to be deducted while determining the cost of purchase. Though ICDS-4 dealing with revenue recognition does not list out the components of sale price but by applying the matching concept, yet the sales revenue would include the GST as well.

In view of above, the turnover/gross receipts for the purpose of computing presumptive income under section 44AD/44ADA would be inclusive of GST, as section 145 does not provide for any exception from ICDS to those paying income-tax on income derived on presumptive basis.

3. The persons who are paying income-tax on presumptive basis are required to fill up return form ITR 4 ‘Sugam’. The said return form issued for AY 2018-19 includes the information regarding turnover/gross receipts reported for GST. Precisely, the GSTIN of the person is to be disclosed at row E9 of the return. Further, the amount of turnover/gross receipt as per GST return filed is to be disclosed at row E10.

From above disclosure it appears that the Central Government wants to ensure parity in figures of turnover as reported for income-tax purposes vis-à-vis those reported for GST purposes in order to obviate any possibility of tax evasion. However, there is a shock in this regard which is due to fact that even without any intent of evasion the amount of turnover as per IT Return and as per GST return would never match. Let us discuss about the causes of such difference which are given as under:

(i)   Amount of GST is not included in turnover as per GST return

  The turnover/gross receipts as per GST return means the value of outward supplies which includes taxable, exports, exempt, Nil rated as well as non-GST supplies. Thus, the turnover/gross receipts will not include the amount of CGST/SGST/IGST and Cess whereas as discussed supra these taxes and cesses would be included in the amount of turnover/gross receipts for purpose of computing the presumptive income on which income-tax will be paid under Section 44AD/44ADA.

(ii)   Implementation of GST from 01-07-2017

  As regards filing of return for AY 2018-19, GST regime being implemented from 01-07-2017, the amount of turnover/gross receipt as per GST return filed would be for period of 9 months, whereas for income-tax purposes the gross/turnover would be for full financial year 2017-18.

(iii)   Supply to distinct/related person without consideration

  As per Schedule I of the CGST Act, 2017, supply to related or distinct person, even if without consideration is treated as supply and, thus, subject to GST. The value in this regard is determined as per Valuation Rules provided in the CGST Rules, 2017. Accordingly, the value of such supply would be included in GST return, however, such supply being without consideration would not be accounted for in the books of account and, therefore, would not be part of turnover/gross receipt for income-tax purposes. Further, Section 40A(2)(b) of the Income-tax Act, 1961 is in regard to disallowance of excessive expenditure in respect of payment to related persons and not relevant in above situation.

From above it is evident that the intention of the Government to match the GST turnover and turnover as per Income-tax, is in order to curb tax evasion, which would not be fulfilled as there would remain difference between these figures. Rather it has come as a shock to the taxpayers in form of confusion or dilemma about how the figure should be disclosed in the return form and in case of such a difference what would be the impact thereof?

3.1 What is the solution? – The taxpayers opting for presumptive taxation scheme should disclose the total turnover (including GST/cess) at Schedule BP of ITR 4 and mention the turnover/gross receipt (excluding GST/cess) as per GST return for period 1-7-2017 to 31-3-2018 at row E10.As regards the difference it is suggested that a reconciliation statement can be prepared in the following format:

Particulars Amount

Turnover/Gross Receipt as per GST Returns for FY 2017-18 (1-7-2017 to 31-3-2018)- Disclosed at row 10 of ITR 4. XXX

Add: GST & Compensation Cess on turnover for the period 1-7-2017 to 31-3-2018 XXX

Add: Turnover/Gross Receipt (including Vat/Excise/Service Tax) for period 1-4-2017 to 30-6-2017 XXX

Less: Value of taxable supply of goods to related/distinct persons without consideration. XXX

Turnover/Gross Receipt for FY 2017-18 for arriving at presumptive income- Disclosed at Schedule BP of ITR 4. XXX

In case any query is received from the Income Tax Department regarding the difference between turnover as per GST return and that as per Income Tax, the above reconciliation statement can be submitted to them which should lead to dropping of query by the Deptt.

4. The disclosure of turnover as per GST return in the ITR 4 ‘Sugam’ for the AY 2018-19 fails to serve the purpose for which it was incorporated in the return form. It creates dilemma in the mind of taxpayers as to whether any issue may arise due to non-matching of the figures of turnover? Further, in the instructions to the return form also no clarification has been provided in this regard. In such circumstances the best option available is preparation of reconciliation statement in format as given supra which can be provided to the Income-tax Department in case any query in this regard is received.

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