• Can I, as a lifestyle management consultant avail presumptive tax scheme under 44AD

I have a registered online business as a sole proprietor (LLC) in the United States where I carry out consultations. I am now back in India and working as a freelancer here. I have my clients in the US as well as in India.

Can I, as a lifestyle management consultant avail presumptive tax scheme under 44AD if I open a partnership firm in India? 

Since my nature of work doesn't fall under professions listed in section 44AA, can I simply show my gross receipts from the US and India combined which is obviously under INR 2 crores and deduct my income tax at 6% as I receive all my money digitally in the US and Indian bank accounts?

If not, what would be the best course of action for me to save most taxes?
Asked 4 years ago in Income Tax

Hi,

 

Hope you are doing well !!

 

Yes, you can avail presumptive tax scheme under 44AD and declare 6% (digital receipts) or 8% of gross receipts as your net income.

 

Note:


a) 
If the assessee is a partnership firm, then it can’t claim deduction with respect to interest or remuneration paid to the partners under section 40(b)


b) No deduction under Sections 10A, 10AA, 10B, 10BA shall be availed to get the benefit of section 44AD. Further, deductions cannot be claimed under Section 80HH to 80RRB.

 

Payal Chhajed
CA, Mumbai
5188 Answers
288 Consultations

5.0 on 5.0

Yes, direct transfer details or bank statements can be considered as digital receipts.

 

Yes, you can claim the credit of taxes paid in US while filing ITR in India.

 

As per the tax laws of India, sections 90 and 91 of the Income-tax Act deal with the concept of Foreign tax credit. Section 90 discusses claiming of FTC in a case where India has entered into a Double Taxation Avoidance Agreement (DTAA) with another country.

 

Under these sections, if the taxpayer is a resident of India, and he has paid taxes outside India, he can claim a credit of such foreign taxes paid against his tax payable in India.

 

In accordance with Rule 128, in order to claim FTC, the taxpayer is required to file following documents on or before due date of filing of return:

  1. A statement of :

  • foreign income offered to tax
  • foreign tax deducted or paid on such income in Form No. 67

  1. Certificate or statement specifying the nature of income and the amount of tax deducted therefrom or paid by the taxpayer :

  • From the tax authority of the foreign country
  • from the person responsible for the deduction of such tax
  • signed by the taxpayer

  1. Proof of payment of taxes outside India



We may assist you in entire procedure.

Payal Chhajed
CA, Mumbai
5188 Answers
288 Consultations

5.0 on 5.0

We need to first check DTAA between India and US to decide on taxation of your LLC.

 

As far as income tax of your proprietary firm it is to be said that management consultancy is covered under 44AA but if you say it won't be covered under 44AA you can show income under 44AD but straight away showing 6% income is not the proper thing you need to declare actual profit or 6% of turnover whichever is higher as your income from business.

 

Also you will have to register for GST in such scenario.

 

Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.

Thank you

Naman Maloo
CA, Jaipur
4265 Answers
96 Consultations

5.0 on 5.0

If you have a registered business in USA then the income earned by that establishment in USA would be taxable in USA as per article 7 of DTAA.

Naman Maloo
CA, Jaipur
4265 Answers
96 Consultations

5.0 on 5.0

Hello,

 

Taxation in India is based on the residential status of the assessee. Since you are back in India, first you should check your residential status as per the income tax law for the current F.Y.

If you are considered as a Resident of India, your global income would be taxable in India.

 

Yes, you can avail Sec. 44AD. It is available for a partnership firm.

 

You will have to declare the deemed 6/8% of the gross receipts or the actual income, whichever is higher.

I hope that this answer satisfies your requirements.

 

Regards,

CA Hunny Badlani

Hunny Badlani
CA, Madhya Pradesh
2608 Answers
16 Consultations

5.0 on 5.0

Yes, the direct bank transfers will be considered as digital receipts.

The credit of foreign taxes would be available as per the DTAA.

 

Hunny Badlani
CA, Madhya Pradesh
2608 Answers
16 Consultations

5.0 on 5.0

Rightly said, as Sec. 44AD presumptive Taxation scheme is not available for LLP.

LLC in the US is a different entity from you as an individual under the income tax law. Receipts received by the US-based LLC won't be covered as your income in India.

Sec. 44AD is available to Individual, HUF, and Partnership Firm. So your receipts in India as a freelancer lifestyle management consultant before you form the partnership firm can still be covered u/s. 44AD.

 

Hunny Badlani
CA, Madhya Pradesh
2608 Answers
16 Consultations

5.0 on 5.0

- In India, Incidence of tax depends on the scope of total income which is dependent on the residential status of the person during the previous year. Once your status will be resident and ordinary resident in India, global income will be taxable in India. What is the constitution of business and under what capacity you are receiving income in India really matters for taxation purposes.

- Yes you can form a partnership firm in India and can avail the benefits of 44AD if the gross receipts is lower than Rs.2cr. Deduction of salary and interest to partners is not allowed.

- Tax paid on US income will be set off against total tax payable subject to section 90/91.

Vivek Kumar Arora
CA, Delhi
4825 Answers
1030 Consultations

5.0 on 5.0

Hi. Answers to your queries are as under:

1. Can a partnership firm engaged in lifestyle management consultancy avail presumptive taxation scheme under section 44AD?

 

Yes. Such a partnership firm can avail presumptive taxation scheme under section 44AD since "lifestyle management consultancy" is outside the purview of section 44AA.

However, it would be better to offer you a word of caution. 

Although it is an accepted legal position that tax statutes are to be interpreted strictly and therefore, 44AD can be availed for "lifestyle management consultancy". However, it is basically a "profession" in common parlance. Thus, the Income Tax Department may try to deny the scheme under section 44AD and instead consider the income at 50% of the gross receipts under section 44ADA. In this case, even though there is a strong ground to defend the case, the possibility of prolonged litigation cannot be ruled out. The Income Tax department has recently started this practice of denying 44AD and applying 44ADA. You may refer this recent case of Bangalore Tribunal [please search 'Arthur Bernard Sebastine Pais 44ADA indiankannon' on google if the below mentioned link is deleted by taxfull's system] https://www.itat.gov.in/files/uploads/categoryImage/[deleted]-ITA%20No.1683-Bang-2019%20Ms.pdf . Thus, you should be ready to pursue litigation if section 44AD is to be adopted.

 

Further, deduction of interest and remuneration paid to partners won't be allowed if 44ad is adopted.

 

2. Can the gross receipts in bank account from US as well as India be shown as a combined figure and presumptive income be calculated at 6% of such amount?

A single person LLC is disregarded for tax purposes in US and its income is included in the total income of the sole proprieter himself. In view of this, a detailed study of the facts of the case viz., your residential status, mode of rendering the services, etc. and relevant tax laws of both countries including the Double Taxation Avoidance Agreement between India and US (specially Article 5 and 7) is essential to determine whether the US income would be taxable in India? Whether credit of US tax will be allowed in India or credit of Indian tax be allowed in US etc (exact facts would be required to determine these positions since even a slight variation or mis-interpretation may be disastrous).

 

There are many other options to legally lower the tax outflow.

 

You can send me the detailed facts of your case to get a prima facie opinion on the same. Since contact details cannot be mentioned in the replies (the system automatically deletes them) you would be required to book a consultation through this website, which would cost you Rs. 600 and I would receive a credit of Rs. 450 out of that. 

If you find it useful, request you to give an appropriate rating to the answer. 

Thanks and regards,

 

CA Yogesh Malpani

Rajvinder Sahni
CA, Mumbai
49 Answers
7 Consultations

5.0 on 5.0

Hi

 

In my opinion, such consultancy income shall not be an eligible business for presumptive taxation under section 44AD nor section 44ADA.

You will have to file a business return claiming all expenses on actual basis.

Lakshita Bhandari
CA, Mumbai
5687 Answers
908 Consultations

5.0 on 5.0

Yes, that would be sufficient proof. Further, you must issue invoices in this regard.

 

Yes, you will get foreign tax credit of taxes paid in US.

Lakshita Bhandari
CA, Mumbai
5687 Answers
908 Consultations

5.0 on 5.0

Further, if your aggregate turnover in a Financial year exceeds INR 20 lacs, you will need a GST registration as well.

Once registered under GST, you may apply for Letter of Undertaking and export services without payment of taxes. But, periodic return filing shall be mandatory.

Lakshita Bhandari
CA, Mumbai
5687 Answers
908 Consultations

5.0 on 5.0

Yes, you can still enjoy the benefits of 44AD on your US gross receipts.

Payal Chhajed
CA, Mumbai
5188 Answers
288 Consultations

5.0 on 5.0

1) Sorry to tell you but your Lifestyle management business being a service business wont fall under either Sec 44AD/ADA. You need to pay Income tax on actual Income since no composition scheme is applicable to you.

2) For income derived from business situated in US, you can claim credit under DTAA(Double tax Avoidance agreement) once you pay taxes in US on income originating from US business.

3) You should rather form a business structure as pvt ltd (pay taxes at 25%), withdraw salary upto the amount which you want rather than going for LLP.

 

Chirag Maru
CA, Raipur
210 Answers

5.0 on 5.0

Hello Sir,

 

Yes, direct bank transfer details or bank statements can be considered as digital receipts.

 

Also, you will get credit for the taxes that you will be paying to the US government while filing the ITR.

 

Yes, you will be charged according to 44ADA i.e 50% of your gross receipts on your Indian income until you form the partnership.

 

 

Karishma Chhajer
CA, Jodhpur
2450 Answers
29 Consultations

5.0 on 5.0

Ask a Chartered Accountant

Get tax answers from top-rated CAs in 1 hour. It's quick, easy, and anonymous!
  Ask a CA