Presumptive Scheme of Taxation – Not a license to declare lower income
Query 1]
1. I would like to know whether deduction of NPS in NTR for FY 2023-24 for self employed is available or not?
2. It had been Long Term Capital Loss under Equity in FY 2015-16 and FY 2017-18, which I could not carry forward in subsequent years by mistake, which I have come to know now. My query is whether I can set off this loss now i.e., FY 2023-24 against long term capital gain by filling up revised return?
Opinion:
1. No deduction towards investment in the National Pension Scheme (NPS) under the New Tax Regime (NTR) is available to the self-employed person. It may be noted that only those taxpayers who are still under the Old Tax Regime (OTR) can claim deduction up to Rs. 50,000/- under section 80CCD(1B) towards investment in NPS.
2. The benefit of carry forward of Long Term Capital Loss is admissible only if the same is claimed in the ITR filed. Without ITR being filed or without any loss disclosed in the ITR filed, taxpayers cannot carry forward if it is not available. In your case, since the loss for the FY 2015-16 and FY 2017-18 was not claimed in the TIR, you cannot set off this loss against income of FY 2023-24. Further, the option to file the revised return for the FY 2015-16 & 2016-17 is also not available now.
Query 2]
Please guide whether I can invest the sale proceeds from my house property partly in another house and balance in LTCG saving Bonds after the recent amendment in Budget-2024 presented on 23.07.2024.
Opinion:
1. LTCG tax on the sale of immoveable property acquired prior to July 23rd, 2024 & sold after this date by resident individual & HUF shall be lower of (a) tax computed @ 20% under the old scheme with indexation benefit or (b) tax computed @ 12.50% under the new scheme without indexation benefit.
Taxpayers will be liable to pay tax at lower of method (a) or (b) above. If the tax calculated @ 12.50% is higher than taxpayers may continue to offer the tax @20% by availing the indexation benefit.
2. Whether the taxpayers opts for the old scheme of 20% tax rate option with indexation benefit or new scheme with tax rate of 12.50% without indexation benefit, the capital gain exemption as was available earlier against investment in house property under section 54 or under Section 54F as well as against investment in specified bonds under section 54EC would continue to be available.
Query 3]
An individual’s receipt from coaching classes is Rs. 45 Lacs. Corresponding expenses are Rs.5 Lacs. Thus actual income is Rs. 40 Lacs. ITR is filed & presumptive income Rs. 7 Lacs is shown, which is more than the required income as per section 44AD. Tax on actual income would be substantial but no tax is being paid. Relying on 44AD, can he be assured of no trouble from the IT department for variation between actual income and income declared?
Opinion:
1. Taxpayer is under an obligation to file its Income Tax Return (ITR) by offering its correct and true income.
2. The presumptive scheme of taxation allows taxpayers to offer income higher than the prescribed rate which is 8% or 6% in case the taxpayer is covered by section 44AD of the Income Tax Act-1961. It may be noted that the prescribed rate of 8% or 6% is the minimum rate u/s 44AD which has to be considered and a higher income option is open for the taxpayers which has to be used if taxpayers have higher income.
3. One of the arguments by the taxpayers is that the Income Tax authorities cannot do anything even if they find that the taxpayers apparently and clearly have income more than the prescribed percentage of 8% or 6%. In your case, apparently the person has an income of Rs. 40 Lakh but you have offered income of Rs. 7 Lakh only in the ITR which is surely more than the prescribed rate of 8% or 6%.
In my considered opinion, this may not be the correct interpretation of the law. The powers of the officers are wide & exhaustive enough to assess correct income on the basis of (a) ideal fund remaining as it is in the bank account or (b) higher investment in the same or subsequent financial years, etc. This is also possible to ascertain if taxpayers get covered by scrutiny, survey, search & assessment proceedings carried out with an objective of verification of the source of investment.
4. The presumptive scheme of taxation is introduced with an aim to ease the requirements of maintaining books of accounts, it doesn’t not relieve the taxpayers from justifying its investment source. In short, it may not be considered as a blanket permission to show lower income even if taxpayers have higher income. The concept of disclosure in the ITR forms with respect to a few Balance Sheet items like stock, cash, etc in ITR 4S appears to have been introduced with this idea only. Not offering true or correct income may even result in the application of section 69, 69A or section 69C of the Act if the investment or the expenditure is in excess of the returned income. The provisions of presumptive taxation are enacted to facilitate computation of total income and ease in filing of ITR & it does not give a license to the taxpayer to declare lower income despite having a higher income. A similar issue was expressed by the Ahmedabad bench of ITAT in the case of Shivani Builders [2007] 295 ITR (AT) 281 wherein it has been held that the taxpayer is legally bound to return higher income if the same is more than the benchmark given.
[Views expressed are the personal view of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at nareshjakhotia@gmail.com. Other articles & response to queries are available at www.theTAXtalk.com]
