Subscription   Feedback   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Articles Highlights TMI Notes SMS News Newsletters Calendar Imp. Links Database Experts Contact us More....
Extracts
Home List
← Previous Next →

Presumptive tax on professionals – must be dropped, in any case presumption of 50% net profit is very high and unreasonable

Income Tax - Direct Tax Code - DTC - By: - CA DEV KUMAR KOTHARI - Dated:- 9-3-2016 Last Replied Date:- 10-3-2016 - Professional activities and fixed costs: In any profession, just on starting of own practice, lot of fixed expenses are committed, and during initial years one may not even be able to break even, unless one has backing of family which support by providing infrastructure and manpower free of cost. But such cases are rare, and even if family provides infrastructure, it becomes a moral .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ort interval- in some cases every 11 months and in many cases after 2-5 years depending on terms and conditions settled initially. New professionals have low fees and high costs: In most of professions, competition is intense and is increasing day by day. People prefer to go to senior consultants. When one go to a junior, fees is bargained and junior professional can charge low fees. Junior professional has high fixed costs, whereas, seniors have low fixed costs. Therefore, many senior professio .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rk with a junior professional and if he joins a junior professional, he will charge higher remuneration. Many institutes for example ICAI has prescribed minimum professional fees. But in ground reality we find that even reasonably senior professionals (say with experience of 10-15 years) are unable to charge fees at those rates (unless one adopt unfair practices - arm twisting, and creating circumstances of undue advantages). If one want to have a totally fair play, it is difficult to charge eve .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in type and location of , office furnishing, equipage, and type of vehicles used will affect profitability. Therefore, presumptive taxation on professionals must be dropped. It also depend on style of working - low profile, medium profile and high profile etc. Therefore, presumptive tax is not a suitable method for computing taxable income. For new professionals there must be some concessions: For new industry and newly set up business, the central Government and State Government provide directl .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sion @ 50% of revenue is very high and unreasonable. It is complete disregard of ground realities. The newly proposed S. 44ADA: Vide clause 27 the following new section is proposed (with highlights added) Special provision for computing profits and gains of profession on presumptive basis. 44ADA.(1) Notwithstanding anything contained in sections 28 to 43C, in the case of an assessee, being a resident in India, who is engaged in a profession referred to in sub-section (1) of section 44AA and whos .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed. (3) The written down value of any asset used for the purposes of profession shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years. (4) Notwithstanding anything contained in the foregoing p .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

serted with effect from the 1st day of April, 2017, means it will be applicable from previous year beginning on 01.04.2016. Salient features which need reconsideration: No minimum limit of gross receipts - the provision apply without any amount of minimum limit. Thus even if a part time professional has say gross receipt of ₹ 1,00,000/- he will be assumed to have earned ₹ 50000/- net of all expenses including depreciation. I f his income is low or he has suffered loss due to high fix .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s, and depreciation on motor car, other vehicles, and office equipment/ apparatus etc. For example let us take a case of a new advocate, starting practice at his own. His fixed expenses can be budgeted as follows: Nature of expenditure Rs. Office rent 30000 x 12 3,60,000 Staff costs - personal assistant, clerk, driver and peon 30000 x12 3,60,000 Staff over time, incentive bonus etc. equal to 3 months salary 90,000 Office electricity 5000x 12 54,000 Car running, up-keep, repair, insurance road ta .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ts up to level of revenue of ₹ 20,00,000/- 18,70,000 22 LAKH Increase in Fixed costs at each next level of 20 lakh - 35 lakh 20% 3,74,000 22,44,000 26.40LAKH Increase in Fixed costs at each next level of 15lakh - 35- 50 lakh 20% 4,49,000 26,93,000 31.68LAKH Taking 85% contribution towards fixed costs the Break-even point will be as shown in above table. This contribution is considered at high level because initially a professional will be able to contribute himself in services in higher pr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

at lower side, for a low profile professional while having office and residence in mediocre localities, and low profile office and residence with increase in business one has to shift office and more fixed assets will be required. The variable costs in any assignment will also be about 15-30% depending on nature of assignment, fees charged and costs involved. Assuming lower variable costs of 15% contribution towards fixed costs @ 85%. The variable costs will increase, when owner/ professional w .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

what is new what is new
  ↓     bird's eye view     ↓  


|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version