Assessing Online Income u/s 44AD, Presumptive Taxation
Although India is not considered fully developed in all aspects but in technology India is not far from the leaders. The main sector which is enticing Indian students and professionals is blogosphere because of its comfortability and portability. It gives flexible hours to work as well as it does not count the place or attire you are in, means full freedom. You will be your employer as well as employee.
But the bloggers and people operating websites in India are always perplexed about the taxability of the income arising out of their online assets through Google Adsense, Affiliate Income or Direct Referral revenue otherwise earned through websites. Normally, it is suggested that it should be treated as Normal Business Income (where profit is arrived at after deducting the expenses related to the business) and the tax liability should be arrived at accordingly. However, there is one more way of treating the above income which is far hassle free from treating as Business Income.
Treating Online Income u/s 44AD
Section 44AD of Income Tax Act, 1961 deals with the presumptive taxation of income for small enterprises, which covers all the business except business of plying, hiring or leasing goods carriages referred to in section 44AE, also it does not cover income from profession like authorship etc., income in nature of commission or brokerage or any person carrying on nay agency business.
The provisions of section 44AD are available to an individual, Hindu undivided family or a partnership firm, who is a resident in India, but not a limited liability partnership firm and whose annual turnover or gross receipts does not exceed Rs. 1 Crore from the Assessment Year 2013-14 onwards.
As per section 44AD, a sum equal to 8% of the total turnover or gross receipts of the assessee in the previous year on account of eligible business shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”. The 8% of the turnover/ gross receipt is minimum threshold and assesee is free to declare more than 8% as his profit and gain. Such provision are provided to make the small businesses declare profit at the rate mentioned above without maintaining any records and without allowing any other deduction except deduction allowable u/s 80C to 80U of the Income Tax Act.
Considering the Amended Provisions of Section 44AD of the Income Tax Act, 1961, in our view, online income like Google Adsense or similar income from running the website(s) can be considered under Section 44AD of the Income Tax Act. In such case, 8% of the total amount received in a year can be treated as Income of the Year and the applicable tax can be paid accordingly without worrying about keeping cumbersome record of expenses.
It can be further simplified by the following example:
Total Online Income for Financial Year 2012-13 through Adsense / other website revenue totaled Rs. 20 lac
8% of the total Receipt – Rs. 1,60,000.
Hence, income for the purpose of taxation is Rs. 1,60,000 and no tax is payable in such case as the income of Rs. 80,000 is less than the minimum threshold for the purpose of Income Tax.
If we take another example where total receipts of the year are Rs. 50 lac, the 8% of which will work out to Rs. 4,00,000 and the tax will be payable as per applicable slab rates on such sum of Rs. 4,00,000 (In this case, tax for the Assessment Year 2014-15 for an individual other than senior citizen will work out to Rs. 18,600, after rebate of Rs. 2,000).
Here are some important points which one should consider while opting for section 44AD:
- No deduction of expenses incurred to earn income is allowed.
- Books of account is not required to maintain if income is shown 8% or More than 8% of gross receipt but the onus of proof of income remains with assessee, so it is advisable to retain invoices or cheques etc.
- In case assessee who wants to show income less than 8%, books of account is necessary to maintain and the account should be audited u/s 44AB.
- Deduction u/s 80C to 80U is allowed.
- Loss can also be carried forward to next year upto maximum of 8 years.