Pre-Budget Wishlist: Self-Employed Seek Greater Flexibility in Tax Regime Switching

2 Jan 2024 , 03:42 AM

Presumptive Taxation Overview:

• Presumptive taxation, aimed at simplifying tax processes for small businesses and certain professionals, remains beneficial for eligible taxpayers
• Allows self-employed individuals to choose between paying tax on actual net profit or presumptive income.
• Presumptive taxation covered under sections 44AD, 44ADA, and 44AE of the Income Tax Act.
• Small businesses and specified professionals with turnover or gross receipts up to certain limits are eligible.

Current Limits and Benefits:

• Resident individuals, HUFs, or partnership firms with up to Rs 2 crore turnover can opt for presumptive taxation.
• Professionals engaged in specific fields with up to Rs 50 lakh turnover can opt for presumptive taxation.
• Taxpayer not required to maintain books of accounts.
• Taxable income calculation involves offering 8 percent (business) or 50 percent (professional) of annual turnover.
• In Budget 2023, turnover limits were raised for businesses and professionals with non-cash receipts.

Expert Insights:

• Neeraj Agarwala suggests that current alternatives for self-employed individuals make additional changes in Budget 2024 unlikely.
• Chetan Chandak proposes considering presumptive taxation for other smaller professionals with different turnover limits and tax rates.

Tax Deducted at Source (TDS):

• Section 194R of the Income Tax Act imposes 10 percent TDS on benefits received by professionals and businessmen.
• Neeraj Agarwala suggests a reduction in excessive TDS, especially for those with up to Rs 24 lakh annual income opting for presumptive taxation.

Old and New Tax Regime:

• New tax regime introduced in Budget 2020 offers lower tax rates but fewer exemptions and deductions.
• Salaried individuals can switch between old and new regimes every financial year.
• Self-employed individuals can make this switch only once in their lifetime.
• Chandak recommends allowing self-employed individuals to choose between the old and new tax regimes annually, similar to salaried individuals.

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