In our previous column, we covered various deductions in the Income Tax Act which you are entitled to. In this new series, we shall turn our attention to three other aspects — miscellaneous provisions, treatment of losses and presumptive tax. We start with the miscellaneous provisions.
Gameshows / Lottery etc: Sec. 115B
Winnings from race, lottery, card game, crossword puzzle or betting, i.e. gambling in any form is taxed at the maximum marginal rate. Lottery includes schemes under different names, like money circulation scheme, or remittances for the purpose of securing prize money or awards. The scope encompasses any game show, an entertainment programme on TV or electronic mode, in which people compete to win prizes.
No expenditure is allowed except that on owning and maintaining race horses. Even the benefit of the basic threshold is not available. Consequently, if the winnings are Rs 1,00,000, the tax payable would be Rs 31,200, even if there is no other income.
Cash Payments over Rs 10,000: Sec. 40A(3)
Payment in excess of Rs 10,000 apart from a bank related transaction is not allowed as a deduction. To ease operational problems caused to small truck owners or drivers, the limit is higher at Rs 35,000. Moreover, to ease pressure in genuine cases, Rule 6DD lists several situations under which the provisions of this section will not be operative.
CBDT Circular 27/2017 dt. 3.11.17, has clarified that cash sale of the agricultural produce by its cultivator to the trader for less than Rs 2 lakh will not —
(a) Result in any disallowance of expenditure u/s 40A (3) in the case of trader;
(b) Attract prohibition u/s 269ST in the case of the cultivator; and
(c) Require the cultivator to quote his PAN/or Form-60
Threshold for Maintenance of Books of Accounts: Sec. 44AA
Professionals in legal, medical, engineering, architecture, accountancy, technical consultancy and interior decoration have to maintain books of accounts. Sec 44AA casts an obligation on an individual or HUF carrying on business or profession, other than these professions, to maintain books of accounts and documents provided that the income and total sales, turnover or gross receipts, exceeds Rs 2.5 lakh and Rs 25 lakh, respectively.
Compulsory Audit: Sec. 44AB
Individuals and HUFs have to get their accounts audited if their total sales, turnover or gross receipts from their business exceed Rs 2 crore and gross receipts from his profession exceed Rs 50 lakh. Penalty leviable u/s 271B for failure to get accounts audited or to furnish a report of such audit is up to Rs 1.5 lakh.
Sec 271J provides for a penalty on an accountant, merchant banker or registered valuer who furnishes incorrect information in a report or certificate. The amount of penalty is Rs 10,000 for each such inaccurate report or certificate.
MAT and AMT
To prevent a company taking undue advantages of many deductions to bring down its taxable income drastically, the authorities have inserted Sec. 115JB dealing with Minimum Alternate Tax (MAT) for companies.
If the tax liability under normal provisions is lower than the MAT rate of 18.5 per cent of book profit, the book profit shall be deemed to be the total income and charged to tax at the MAT rate. The book profit for MAT is arrived at by disallowance of deductions claimed u/s 35AD, depreciation allowable u/s 32, 34, 34A, deductions claimed under Chapter VIA, Sec. 10AA, etc.
The amount of extra tax paid is credited to the assessee and allowed to be carried forward for up to 15 successive years for set off against tax payable after the company comes out of MAT.
Sec 115JC dealing with Alternate Minimum Tax (AMT) has made parallel provisions for individuals, HUFs, AOPs, BOIs, LLPs (whether incorporated or not) and artificial juridical persons.
The Income Tax Act brings all kinds of incomes into the tax net, even where the assessee has acquired it by unethical or illegal manner. Any deduction on account of expenses incurred in extortion, hafta, bribes, paid for any activity, legal or illegal, is disallowed.
Madhya Pradesh High Court has, in its order dated August 23, 2011 observed that while kidnapping is an offence, paying ransom to save life is definitely not an offence and therefore, it is deductible.
Moreover, a doctor arrested with a heroin worth Rs 5.5 lakh had sought deduction of income on the ground that contraband seized from him forms part of his stock-in-trade and there was a loss on account of confiscation. The Supreme Court in this case observed, “Business losses are allowable on ordinary commercial principles in computing profits. Once it is found that the heroin formed part of the stock-in-trade of the assessee, it follows that the seizure and confiscation of such stock-in-trade has to be allowed as business loss.”
The Central Board of Direct Taxes (CBDT) has issued circular 12/2016 dated May 30, 2016, stating that the claim for any debt or part thereof shall be admissible u/s 36(1vii) if it is written off as irrecoverable in the books of accounts of the assessee and it fulfils the conditions stipulated in Sec. 36(2).Previously, the assessee had to establish the fact that the loan has indeed become irrecoverable to the satisfaction of the ITO.
The authors, A.N. and Sandeep Shanbhag, are leading financial advisors. Write to them at email@example.com