No deduction under S44AD

QI am into wholesale business in textiles. I want to enter into a partnership with my brother. My turnover is about ` 1.78 crore for financial year 2017- 18. My income is calculated at a fixed rate on the turnover and I want to file my returns. Will the partnership firm be able to get the benefit of deduction of interest on partner’s capital from the profit calculated on the total turnover? Since I do not want to maintain books of account, on what basis should I calculate the interest? SHRAVAN Via mail

A) The presumptive taxation scheme under Section 44AD of the Income- Tax Act covers all small businesses with total turnover/ gross receipts of upto ` 2 crore ( except the business of plying, hiring and leasing goods carriages covered under section 44AE).

Resident individuals, Hindu Undivided Family concerns and partnership firms who have not claimed deduction under any of Section 10AA or deduction under any provisions of Chapter VIA in respect of certain incomes in the relevant assessment year would be covered under this scheme. The presumptive rate of tax would be eight per cent of the total turnover or gross receipts.

However, the presumptive rate of six per cent of total turnover or gross receipts will be applicable in respect of amount which is received either by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date of filing of return.

The assessee has an option to declare in his return of income, an amount already higher than the presumptive income so calculated, claimed to have been actually earned by them. All deductions allowable under Section 30 to 38 shall be deemed to have been allowed in full and no further deduction shall be allowed.

The intention of widening the scope of this scheme is to reduce the compliance and administrative burden on small businessmen and relieve them from the requirement of maintaining books of account. Such assessee opting for the presumptive scheme are not required to maintain books of account under Section 44AA or get them audited under Section 44AB.

Salary, interest, remuneration paid to partner as per Section 40( b) is not deductible if you choose presumptive income scheme.

The presumptive taxation scheme under section 44AD covers all small businesses with total turnover of upto 2 crore. If you choose this option, salary, interest, remuneration paid to partner as per Section 40( b) is not allowed

QI have received ` 18 lakh from LIC as maturity amount of an investment made by my maternal aunt in my name. How should I show the same in my income tax return? What is the tax liability of my aunt? I know the maturity amount from LIC is exempt from tax under Section 10 of Income- Tax Act. But how do we treat an indirect gift like this one, where investment was not made by me but was invested by my aunt. JAISHREE Khammam

A) The entire proceeds received by you on maturity of your LIC policy will be exempt from tax. Even if the amount was received by you as gift from your maternal aunt it will not attract any tax liability.

Section 56( 2)( vi) provides that any sum of money or immovable or movable property received without consideration or for inadequate consideration is chargeable to income- tax in the assessment of recipient ( donee) under the head “income from other sources”.

However, according to proviso to section 56( 2) ( vi) the sum of money received as gift will not be taxable on amounts received from relatives. Further the explanation to section 56( 2)( vi) defines the term relative and provides a list of relatives to whom the above provisions will not apply. Since maternal aunt is covered in the list of relatives, the gift received from her shall be exempt in your hands.