Article Details

Professionals excluded from maintaining accounts if offers 50% of receipt as income

The taxability of receipt depends upon the relationship between the payer and payee. If the employer / employee relationship exists then income would be taxable as “Salary Income”. If not, the income would be taxable as professional income under the head “Income from Business/Profession”.

Query 1]
I am a salaried employee. I have taken home loan from a recognized financial institution. Until last year I am filing ITR-1 for my return. For the current assessment year 2017-18, I want to take benefits of housing loan principal and interest deduction u/s 80C as well as u/s 24(b). So, which ITR form should I fill? There is no separate deduction U/s 24(b) is given in ITR-1. Please guide me. [Gajanan S. Dharmale, Amravati- gajanansdharmale@gmail.com]

Opinion:

“Today, it takes more brains and effort to make out the income-tax form than it does to make the income”- Alfred E. Neuman

Individual can file return of income using ITR-1 to ITR-4. If there is no business income then return can be filed in ITR-1 or ITR-2. Else, return has to be filed in ITR-3 or 4.

Income tax return (ITR) can be filed in ITR 1 only if individual taxpayer have income from salaries/ One House Property income/ other source income provided that (a) Total income doesn’t exceed Rs. 50 Lakh or (b) Dividend income does not exceed Rs. 10 Lakh or (c) No income u/s 115BBE or (d) No relief is claimed u/s 90 or 90A).

In your case, you can file your return of income in ITR-1.

Interest paid on self occupied house property can be mentioned in negative in Part B (B2) whereas deduction towards principal repayment can be claimed by punching the data in Part C (U/s 80C) in ITR-1.

Query 2]
I have two income sources. One is Salary as a teacher and second is commission as a LIC agent. Which ITR form should I file? Whether I am eligible for any deduction against my commission even if no expenses bills are there with me? Please guide. [Ranjit R. Warkad- ranjitwarkad@gmail.com]

Opinion:

Your main income is income from salary. Your income from LIC could either fall under the category of “Income from Business/Profession” or as “Income from Other source”. If you are putting keen efforts in an organized & systematic way, devoting considerable time & energy for LIC business then income would be considered as “Business Income”, else it will be treated as other source Income. If LIC commission is considered as Business Income, you can file return in ITR-3. If it is “other source income”, return can be filed in ITR-2.

Insurance agents are eligible for certain deduction on adhoc basis by virtue of Circular No. 594 Dt. 15th May, 1991, 648 Dt. 30^th March, 1993 and 677 Dt. 28^th January, 1994. The benefit of ad hoc deduction will be available to insurance agent up to a commission of Rs. 60,000/- even if no records/documents of expenses incurred are maintained, as under:

Where separate figures of first year and renewal commission are available, 50% of first year commission & 15% of the renewal commission;
Where separate figures as above are not available, 1/3^rd of the gross commissions.

In both the above cases, the ad hoc deduction will be subject to a ceiling limit of Rs. 20,000/-. The benefit of ad hoc deduction will not be available to agents who have earned total commission of more than Rs. 60,000 during the year. In such cases, deduction towards expenditure would be admissible on the basis of actual expenses incurred & supported by bills & supporting.

Query 3]
I am a LIC agent. Until last year I am filing ITR-4. This year ITR-4 is available as quick filing form "Sugam". Should I file ITR-4 form or any other form? Please inform. [Pushpa R. Warkad, Wardha.- warkadpushpa@gmail.com]

Opinion:

ITR 4 forms, as was applicable for the A.Y. 2016-17, has now been upgraded to ITR-3 now in the AY 2017-18. It appears that LIC commission income is your main source of income and hence it would be considered as your business income. You would be required to file the income tax return in ITR-3.

Query 4]
I am working as medical consultant at a factory & getting fixed monthly remuneration as professional fee, changing every year. Till last financial year, I was to bear the expenditure on medicines, compounder, stationary, travel to factory. Since 1^st April 2017, all above expenditure is borne by the factory. Please let me know as I have no expenditure hereafter, whether the fixed monthly remuneration is to be shown as Professional fee or fixed remuneration. What about balance sheet? [Ramesh Jain- drrfjain1947@gmail.com]

Opinion:

The taxability of receipt depends upon the relationship between the payer and payee. If the employer / employee relationship exists then income would be taxable as “Salary Income”. If not, the income would be taxable as professional income under the head “Income from Business/Profession”.
Whether employer/employee relationship exists or not need to be ascertained from the contract /papers signed by you with the company. If from the agreement it could be ascertained that the employer has all the control which it exercise over its other employees & if you are governed by the rules of the organization concerning employment like leave, attendance, working conditions, PF, Gratuity and other terminal benefits on retirement or resignation then it would be considered as an employer /employee relationship between you and the company and resultantly income would be taxable as “Income from Salary”.
If professional income, then
a] You can claim expenses like conveyance, books, petrol, depreciation etc incurred for earning this income incurred for earning the income as deduction.
b] You may be required to maintain the books of accounts and may be required to file the balance sheet details in the return.
[To reduce the compliance burden & promoting ease of doing business by simplifying compliance burden, a concept of presumptive taxation is extended to professionals by introducing section 44ADA in the Income Tax Act-1961. As a result, any resident Indian having income from profession (legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, authorized representative, film artist, company secretary, information technology and such other profession as notified by CBDT) with gross receipt from such profession not exceeding Rs. 50 lakhs have an option to declare 50% or more of the gross receipts as income from such profession. If minimum 50% of the receipt is offered as income then no books of accounts, expenses vouchers/record etc is required to be maintained & straight forward minimum 50% of the receipt could be offered for taxation. However, if such person claims income to be lower than 50% of the gross receipts from such profession & further if total income exceeds the maximum amount not chargeable to income-tax, then the person has to maintain the required/specified books of account, documents and get them audited from the CA].
In your case, if income is considered as income from profession, you can offer minimum of 50% of receipt as income u/s 44ADA. If you intend to offer lower than 50% of receipt as income then you would be required to maintain & get your books of accounts audited.

Query 5]
My brother had sold his flat in Nagpur for Rs. 21.50 Lakh in the F.Y. 2015-16 & invested an Amount of Rs 17 Lakh for the purchase of joint property with his son in Bangalore in F.Y. 2016-17. We want to know whether the income tax will have to be paid for the balance amount of Rs. 4.50 Lakh in the financial year 2016-17 or it can be paid next year being the facility available for a period of 3 years i.e., from the date of sale? [S.R.Rao- shriniwasrao1945@gmail.com]

Opinion:

Your brother has sold a residential house property for Rs. 21.50 Lakh & thereafter has purchased another house property. He is eligible for exemption u/s 54 against his investment in another house property in Bangalore. For exemption u/s 54, investment of entire sale consideration (i.e., Rs. 21.50 Lakh in the present case) is not at all required but mere investment of the Long Term Capital Gain (LTCG) is sufficient. In your brother’s case, cost of acquisition is not provided but the amount of LTCG (i.e., sale consideration less indexed cost of acquisition/improvement less transfer expenses) is obviously going to be lower than Rs. 21.50 Lakh. Since, investment in the Bangalore house property is sure to exceed the amount of LTCG, entire amount of LTCG would be eligible for exemption u/s 54. There would not be any requirement to invest the balance amount of Rs. 4.50 Lakh as mentioned in the query.

[The author is a practicing Chartered Accountant from Nagpur. Readers may send their direct tax related queries at
SSRPN & Co
10, Laxmi Vyankatesh Apartment
C.A. Road, Telephone Exch. Square
Nagpur-440008
or email it at nareshjakhotia@ssrpn.com]