Sugam returns — who will benefit from them?

September 04, 2011 09:27 pm | Updated 09:27 pm IST

QUESTION: Which class of taxpayers can file Sugam returns claimed by the Finance Minister as a simplified return meant for small businessmen?

ANSWER: Sugam return is a three-page return available for assessment year 2011-12 for those who are paying tax on presumptive income of eligible undertakings under Sec. 44AD and 44AE. Sec. 44AD is applicable for individuals and Hindu Undivided Families (HUF) or a partnership firm (but not a Limited Liability Partnership), not claiming any exemption under Sec. 10A, 10AA, 10B, 10BA or under any provisions of Chapter VI-A meant for business. Eligible undertakings under Sec. 44AD are defined as those businesses with a total turnover or gross receipts in the previous year not exceeding an amount of Rs.60 lakh. Those covered under the section will pay tax on the inferred income at 8 per cent of the total turnover or gross receipts.

Sec. 44AE is meant for truck operators owning not more than ten goods vehicle from which inferred income is Rs.5,000 per heavy vehicle and Rs.4,000 for others per annum, proportionately less, if the vehicle owned is for less than a year. In all other respects, the return is the same as for those covered under Sec. 44AD.

Since what is estimated is net profit, no other expenses including depreciation would be permissible.

Q: What are the features of Sugam returns?

A: Sugam returns are meant for those whose business falls within the limits of Sec. 44AD or 44AE with only other income from salary and other sources and with not more than one property. Extent of turnover for assessees under Sec. 44AD and number of heavy vehicles and other trucks for those covered under Sec. 44AE with inferred income under the sections along with income from salary and other sources are to be reported, besides claims for deductions under Sec. 80C and other personal deductions under Chapter VI-A. Particulars of payments of advance tax and tax deducted/ collected at source with calculation of interest under Sec. 234A, 234B and 234C for delayed return and short payments for advance tax and delayed instalments of advance tax, where leviable, are also to be indicated. Though these provisions are generally applicable for no account cases, particulars are also required as to the extent of total (1) sundry debtors, (2) creditors, (3) stock-in-trade and (4) cash balance, apparently prescribed with a view to verifying the scale of business admitted in the return.

Those with income from capital gains or with business eligible for incentive deductions and agricultural income will not be eligible to use Sugam return.

Q: What will happen if the actual income of an assessee falls below the presumptive income?

A: If an assessee claims that his income is less than the presumptive income, it is for him to keep accounts, have it audited and claim such lesser income in a regular return, which is bound to be admitted, subject to scrutiny. Sugam return is not available for him.

Q: What would happen if a person in eligible business has more than the inferred income under Sec. 44AD or 44AE of the Act?

A: Sec. 44AD(1) provides that the income of the assessee engaged in eligible business under this section will be the inferred income or “as the case may be a sum higher than the aforesaid sum”. Sec. 44AE(1) provides that the income is the inferred income “or an amount claimed to have actually earned from such vehicle, whichever is higher”. A person with books disclosing a larger income or requires a larger income to be reported, so as to explain his investments, household or other expenses is bound to declare such higher income, but he will not be able to utilise the Sugam return.

Q: Why should any assessee claim a higher income if he can pay lesser tax?

A: If an assessee makes an investment or incurs an expenditure or shows a larger income in his books, it will certainly be open to the assessing officer to report a higher income, since there is no immunity from reporting the correct income merely because he would have otherwise been able to avail himself of the benefit of Sec. 44AD and 44AE. The benefit of presumptive tax under these sections is meant for those assessees who are able to keep accounts and prove their real profit as not exceeding the presumptive income to the satisfaction of the assessing officer. It is for such assessees Sugam return will be helpful.

Q: How can a businessman file a loss return, when he is having a total turnover of less than Rs.60 lakh? Is it mandatory for him to return an income at 8 per cent of his turnover? His position will be still worse, when he has huge unabsorbed depreciation and carried forward loss. Kindly clarify.

A: Sec. 44AD and 44AE do not bar a person from proving his income which is less than the presumptive income by filing a regular return, if he keeps accounts and the income declared in the return is supported by a tax audit report as specifically provided under Sec. 44AD(5) and 44AE(7). There is no reason, why this provision should not have application in a case where the assessee reports a loss and complies with the conditions under these sections so that the assessee files a regular return claiming loss and can avail himself of such losses against future income, where he is not taxed under Sec. 44AD/ 44AE of the Act. Since net income under Sec. 44AD and 44AE is mandatory business income, carried forward unabsorbed depreciation and losses in regular assessment will not be available in Sugam return and can be set off only against regular assessment. If there is any other view Sugam return cannot be used as it will shut out any other adjustment.

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