Explore the simplified Presumptive Taxation Scheme under the Indian Income Tax Act. Sections 44AD, 44ADA, and 44AE offer eligible individuals and entities a convenient way to declare income without maintaining detailed accounts. Understand the applicability, limits, and rates for each section, ensuring compliance with advance tax and audit requirements.
The presumptive taxation scheme is a beneficial scheme offered under the Indian Income Tax Act that allows eligible individuals and entities to declare their income at a prescribed rate without the requirement of maintaining detailed books of accounts or undergoing an audit. This scheme provides simplicity and convenience to taxpayers by offering them an alternative method of calculating and reporting their taxable income. Three key sections of the Income Tax Act, namely Section 44AD, Section 44ADA, and Section 44AE, encompass the provisions of the presumptive taxation scheme.
Section 44AD
Section 44AD is applicable to resident individuals, resident Hindu Undivided Families (HUFs), and resident partnership firms (excluding Limited Liability Partnership Firms). However, it does not apply to businesses engaged in the plying, hiring, or leasing of goods carriages under Section 44AE, or to individuals involved in agency businesses or earning income in the form of commission or brokerage. The turnover or gross receipts limit for availing the benefits of Section 44AD is Rs 2,00,00,000/-. Depending on the mode of receipt, the rate of income can be either 6% or 8%.
Applicable to whom:
- Resident Individual
- Resident Hindu Undivided Family
- Resident Partnership Firm (not Limited Liability Partnership Firm)
Business not covered u/s 44AD:
- Business of plying, hiring or leasing of goods carriages referred to in section 44AE.
- A person who is carrying on any agency business.
- A person who is earning income in the nature of commission or brokerage
Limit: Rs 2,00,00,000/-
Rate of Income:
- 6%: – If turnover/gross receipt is received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed during the previous year or before the due date of filing of return under section 139(1).
- 8%: – Other than above mentioned.
Section 44ADA
For professionals, Section 44ADA provides presumptive taxation benefits. It applies to individuals and partnership firms (excluding Limited Liability Partnership Firms) involved in professions such as legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, and other professions notified by the Central Board of Direct Taxes (CBDT). The total gross receipts of the profession are considered for calculating the taxable income, and the rate of income is set at 50%.
Applicable to whom:
- Individual
- 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
Profession covered u/s 44ADA:
- Legal
- Medical
- Engineering or architectural
- Accountancy
- Technical consultancy
- Interior decoration
- Any other profession as notified by CBDT
Limit: Rs 50,00,000/-
Rate of Income: 50% of the total gross receipts of the profession
Section 44AE
Section 44AE is applicable to any person engaged in the business of plying, hiring, or leasing goods carriages, as long as they do not own more than 10 goods vehicles at any given time during the year. The income is computed on an estimated basis, with specific rates applicable depending on the type of vehicle owned.
Applicable to whom:
- The provisions of section 44AE are applicable to every person (i.e., an individual, HUF, firm, company, etc.)
Business covered:
The presumptive taxation scheme of section 44AE can be adopted by a 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.
Rate of Income:
Income will be computed on an estimated basis. 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 Rs 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.
Common point applicable if opted for presumptive taxation scheme:
- Advance Tax- whole amount of advance tax on or before 15th March of the previous year.
- Income to be shown at lower rate than the prescribed rate- Books of accounts to be audited u/s 44AB.
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