In order to give relief to small businessmen and professionals from the tedious job of maintaining books of accounts to getting their accounts audited, the Income Tax Act has introduced Presumptive Taxation Scheme under Section 44AD, Section 44ADA and Section 44AE.
Under Presumptive Taxation Scheme, the income is calculated on a presumptive basis, provided the turnover is below a stipulated limit. Here, we provide with the details of all the sections of the scheme as introduced by the Income Tax Act:
Presumptive Taxation Scheme of Section 44AD:
This scheme is designed for small taxpayers engaged in any business except the following businesses:
- Any business of plying, hiring or leasing of goods carriages referred to in section 44AE.
- Any Person carrying on an agency business
- Any Person earning income in the nature of Commission or Brokerage.
- Any business whose total turnover or gross receipts exceeds two crore rupees
Apart from above discussed businesses, a person carrying on profession as referred to in section 44AA(1)is not eligible for presumptive taxation scheme.
Eligibility:
- Resident Individual
- Resident Hindu Undivided Family
- Resident Partnership Firm (not Limited Liability Partnership Firm)
In other words, the scheme cannot be adopted by a non-resident and by any person other than an individual, a HUF or a partnership firm (not Limited Liability Partnership Firm).
This scheme cannot be adopted by a person who has made any claim towards deductions under section 10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant year
Manner of Computation of Taxable Business Income
Any person adopting the scheme and having total turnover or gross receipts less than Two Crore Rupees, Income shall be computed @8% of the turnover or gross receipts of the eligible business of the year.
Further, in case the turnover or gross receipts is received by an account payee cheque or draft or by use of electronic system or through any other electric mode, income shall be @6% of such turnover or gross receipts.
However, a person may voluntarily disclose his business income at more than 8%/ 6% , as the case may be of the turnover or gross receipts.
Payment of Advance Tax:
Any person opting for the presumptive taxation scheme under section 44AD is liable to pay whole amount of advance tax on or before 15thMarch of the previous year. If he fails to pay the advance tax by 15th March of previous year, he shall be liable to pay interest as per section 234C.
Note: Any amount paid by way of advance tax on or before 31st day of March shall also be treated as advance tax paid during the financial year ending on that day.
Consequences for opting out of Presumptive Scheme:
If a person opts for presumptive taxation scheme then he is also require to follow the same scheme for next 5 years. If he failed to do so, then presumptive taxation scheme will not be available for him for next 5 years. Further, he is required to keep and maintain books of account and he is also liable for tax audit as per section 44AB from the AY in which he opts out from the presumptive taxation scheme. [If his total income exceeds maximum amount not chargeable to tax]
PRESUMPTIVE TAXATION SCHEME OF SECTION 44ADA:
A person resident in India engaged in following professions can take advantage of presumptive taxation scheme of section 44ADA:-
1) Legal
2) Medical
3) Engineering or architectural
4) Accountancy
5) Technical consultancy
6) Interior decoration
7) Any other profession as notified by CBDT
Eligibility:
1. Individual;
2. Partnership firm other than a Limited Liability Partnership as defined under clause (n) of sub-section (1) of section 2 of Limited Liability Partnership Act, 2008.
3. Total Gross Receipts are less than Rs. 50 lakh in a year.
Manner of Computation of Taxable Income
Income shall be computed @50% of the total gross receipts of the profession. However, such person can declare income higher than 50%.
Payment of Advance Tax:
Any person opting for the presumptive taxation scheme under section 44AD is liable to pay whole amount of advance tax on or before 15thMarch of the previous year. If he fails to pay the advance tax by 15th March of previous year, he shall be liable to pay interest as per section 234C.
Note: Any amount paid by way of advance tax on or before 31st day of March shall also be treated as advance tax paid during the financial year ending on that day.
PRESUMPTIVE TAXATION SCHEME UNDER SECTION 44AE
Applicable to taxpayers engaged in the business of plying, hiring or leasing of goods carriages.
Eligibility:
1. Every person (i.e., an individual, HUF, firm, company, etc.).
2. Any person who is engaged in the business of plying, hiring or leasing of goods carriages and who does not own more than 10 goods vehicles at any time during the year.
Manner of Computation of Taxable Income:
For Heavy Goods Vehicle, income will be computed at the rate of Rs. 1,000 per ton of gross vehicle weight for every month or part of a month during which the heavy goods vehicle is owned by taxpayer.
In case of vehicles other than heavy goods vehicle, income will be computed at the rate of 7,500 for every month or part of a month during which the goods carriage is owned by taxpayer.
Part of the month would be considered as full month.
Note 1 : If the actual income is higher than the presumptive rate, i.e., higher than Rs. 1,000/Rs. 7,500, then such higher income can be declared.
Note 2 : “Heavy Goods Vehicle” means any goods carriage having gross vehicle weight exceeding 12,000 kilograms.
Advance Tax Provision:
There is no concession as regards payment of advance tax in case of a person who adopts the presumptive taxation scheme of section 44AE and, hence, he will be liable to pay advance tax even if he adopts the presumptive taxation scheme of section 44AE.
SOME COMMON POINTS UNDER PRESUMPTIVE TAXATION SCHEME:
No further expenses are allowed/disallowed:
In case of a person who is opting for the presumptive taxation scheme of section 44AD, the provisions of allowance/disallowances as provided under the Income-tax Law will not apply and income computed at the presumptive rate u/s 44AD/44ADA/44AE as the case may be, will be the final taxable income of the business covered under the presumptive taxation scheme and no further expenses will be allowed or disallowed.
However, the assessee can claim deduction under chapter VI-A. While computing income as per the provisions of section 44AD/44ADA, separate deduction on account of depreciation is not available, however, the written down value of any asset used in such business shall be calculated as if depreciation as per section 32 is claimed and has been actually allowed.
Factors to consider before opting for the scheme
A person can declare income at lower rate u/s 44AD/44ADA/44AE, as the case may be), however, if he does so, and his income exceeds the maximum amount which is not chargeable to tax, then he is required to maintain the books of account as per the provisions of section 44AA and has to get his accounts audited as per section 44AB.
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