To give relief to small taxpayers from this tedious work, the Income-tax Act has framed the presumptive taxation scheme under sections 44AD. A person adopting the presumptive taxation scheme can declare income at a prescribed rate and, in turn, is relieved from tedious job of maintenance of books of account.
The presumptive taxation scheme of section 44AD can be adopted by following persons: 1) Resident Individual 2) Resident Hindu Undivided Family 3) Resident Partnership Firm (not Limited Liability Partnership Firm).
The presumptive business cannot be Business of plying, hiring or leasing goods carriages, person who is carrying on any agency business, person who is earning income in the nature of commission or brokerage. The provision can be applied to all other business other than business mention above.
Budget 2016 has increase the Limit of Gross receipt from current of Rs 1 Crore to Rs 2 Crore. So Business and Partnership Firm whose gross receipt is up to Rs 2 Crore can avail benefit in this section. In case of a person who is opting for the presumptive taxation scheme of section 44AD, the provisions of allowance/disallowances as provided under the Income-tax Law will not apply and income computed at the presumptive rate of 8% will be the final taxable income of the business covered under the presumptive taxation scheme and no further expenses will be allowed or disallowed. However, in case of a taxpayer being a partnership firm opting for the presumptive taxation scheme, from the income computed @ 8% of the turnover further deduction can be claimed on account of remuneration and interest paid to partners. Further No Books of Accounts is required to be maintained.
A business which is earning Gross Receipts or Turnover of Rs 1 Crore has to pay Tax on 8% of Receipts which is Rs 8 Lakhs. Individual and Proprietary Firm can take benefit of the below mention deduction and claim full benefit so that their tax liability come to Zero. Following are the brief
- Investment in 80C for Purpose of taking full benefit of 1.5 Lakhs
Deduction under 80C is related to deduction that an individual can deduct from his gross taxable income in order to reduce his tax liability by investing in specified investment. It is applicable to individuals and HUF. An assessee can get deduction under section 80C upto a maximum of Rs.150000. The qualifying investments and expenditure as deduction under 80C are investment in Insurance Policy, Post Office Time Deposit Account, Investment in Equity Linked Saving Scheme (Mutual Funds), Public Provident Fund, National Saving Certificate (Read Article Why to invest in National Saving Certificate ?), Tution Fees Paid, Bank Fixed Time Deposit, Repayment of Principal of Housing Loan, Sukannya Samriddhi account, to Read more about Deduction under section 80C of Income Tax Act - Specified investment / Expenses Click here.
2. Investment in National Pension Scheme up to Rs 50 Thousand
Finance Minister Arun Jaitley in Budget 2015-16 introduced an additional income tax deduction of Rs. 50,000 for contribution to the New Pension Scheme (NPS) under Section 80CCD. NPS is a voluntary pension scheme, which is regulated by the Pension Fund Regulatory and Development Authority. This extra deduction of Rs. 50,000 on NPS will increase the total deduction allowed under Section 80C and 80CCD of Income Tax Act to Rs. 2 lakh. In Budget 2016, the finance minister has made withdrawals from NPS on maturity tax free upto 40% of the total corpus accumulated. Currently, none of the withdrawals were tax-free unlike other competing instruments such as PPF and EPF where the total withdrawal was tax -free. This is a major step towards making the NPS scheme more attractive and bringing it on par with the other EEE pension schemes. The Budget 2016 proposes to provide a uniform tax treatment to the recognised provident fund, national pension system and superannuation fund.
It is proposed that 40% of the pension wealth received by an employee from the National Pension System Trust shall be exempt.
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3. Home Loan Interest and Rent Allowance 80GG up to Rs 2.5 Lakhs or 60 thousand
For employees who don't get HRA benefits and for professionals who want to claim rent paid for house, the FM raised the deduction against house rent from Rs 2,000 per month to Rs 5,000. This would result in tax savings in the range of Rs 3,708 to Rs 12,204, depending on the income slab. The deduction can be claimed in section 80GG
Further in Budget 2016 First time home buyers to get additional deduction of Rs 50,000 on interest for loan upto Rs 35 lakh. This is covered under section 24 of Income Tax. This additional deduction has been given on interest for loan up to Rs 35 lakh, provided the house value doesn't exceed Rs 50 lakh. For, the 2016-17 Budget proposes tax relief on interest payment on home loan if the property bought, or under construction, is completed within 5 years from the end of the financial year in which the loan was availed instead of the current 3 years. Assuming a loan of Rs 35 lakh to be paid over 20 years, the annual deduction comes to around Rs 2.5 lakh, including the Rs 2 lakh currently available. At 9%, the interest outgo in the first year would be Rs 3.12 lakh. So, the buyer will save Rs 75,000 if he is in the 30% tax-bracket.
4. Medical insurance for Self, Parents and Dependents up to Rs 50 thosaund
Payment of premium on life insurance policy and health insurance policy not only gives insurance cover to a taxpayer but also offers certain tax benefits. Medical insurance premium paid by assessee, being individual/HUF by any mode other than cash. Sum paid by assessee, being individual on account of preventive health check-up. Medical expenditure incurred by assessee, being individual/HUF on the health of a very senior citizen person provided that no amount has been paid to effect or to keep in force an insurance on the health of such person. Read More about Income Tax Benefit for taking Life Insurance Policy 80C, Health Insurance 80D, and Expenditure on Medical Treatment 80DD
5. Relief under Section 87A
Budget has increase the relief under section 87A from Rs 2000/- at present to Rs 5000/-. So effectively if taxable income is less then Rs 5 Lakhs an individual can Claim relief of Rs 5000/- in taxes paid. If we consider 10% slab rate it turnout to be Rs 50000/- as additional benefit which can be claimed in this Section
Form the above Picture it is clear that Businessman, sole proprietor and Partnership Firm can plan in proper manner for the year 2016 -17 financial year. They can save lots of taxes and also plan an investment in Resident Property if he is not owing one. Further Retirement benefit NPS seems to be better option considering current changes in Budget 2016.
For any query you can write to Chirag@cachauhan.in . Before making any decisions do consult your Professional / tax advisor. Author does not take any responsibility for misrepresentation or interpretation of act or rules. Neither the author nor the firm accepts any liability neither for the loss or damage of any kind arising out of information in this document nor for any action taken in reliance there on.