Individual, HUF and Partnership firm, whose annual turnover does not exceed Rs. 2 crores, are given an option to pay tax by declaring business income under presumptive basis i.e. minimum 8% of the business turnover shall be treated as the net profit and thereafter, the tax shall be payable as per the applicable tax rate slabs.

But with parallel laws governing in our country, we often tend to make mistakes in filing the correct Income Tax Return!

1.Not just the Profit but Business Turnover declared in ITR-4 (Sugam) holds a relevance and here’s why-

We all know GST registration becomes mandatory as soon as a business turnover exceeds Rs 40 Lakhs (normal category states).

Therefore, once must keep this in mind that turnover as per Sec 44AD should not exceed the threshold limit if we do not intend to face GST regulations.

2.Is opting out of Presumptive Taxation an option?

If you are opting for the presumptive scheme, you must-

1. File presumptive scheme for at least 5 years in continuation.

2. If you decide to show and file profits as per regular business (ITR-3) i.e. if you opt out of presumptive taxation before the end of these 5 years, you will lose presumptive benefits and disallowed from presumptive taxation for the subsequent 5 years.

Please note that 5 years shall be counted starting the year in which you first file usual taxes for such business.

3. Do you file ITR-3 because one business is audited u/s 44AB and the other business is under presumptive taxation u/s 44AD?

In the above case, we should remember a simple formula-

GST Return Turnover*= Audited Turnover + Presumptive Income Turnover

Since GST registration is PAN based, one must reconcile GST returns with Income tax Return for every financial year. Missing the turnover under presumptive taxation should be avoided or necessary amendments must be made in GST return.

One must also note that GST law has prescribed mandatory maintenance of records like sale, purchase and stock register for every GSTIN holder. So, once the PAN gets GSTIN registered, every business should be justified with proper books of accounts even if filed  under presumptive taxation in Income Tax.

*GST Turnover means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same PAN to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess


Q 1.What if the assessee deals only in exempt goods  and files ITR -4 (Sugam) with turnover exceeding Rs 40 lakhs (normal category states)?

Ans: GST registration is not mandatory in such cases where assessee deals only in exempt goods but one might need to justify the   correctness of exemption taken with the records prescribed under GST law like sales, purchase, stock register, delivery challans.

Q 2.What if the assessee has other sources of income along with Business Income under presumptive taxation?

Ans: In case an assessee deals in both goods & services, GST Registration threshold limit is Rs 20 lakhs( normal category states).

Now if we see the following situation-

Mr X has Rental Income from commercial property of Rs 15 lakhs & declares business turnover u/s 44AD as Rs 20 Lakhs.

Ans– Liable to take GST Registration irrespective of whether the goods are exempt or not.

Presumptive Taxation has always been a convenient method for taxpayers but if we be careful with the filing, we can easily avoid unnecessary notices and litigations

Author Bio

Qualification: CA in Practice
Location: SILIGURI, West Bengal, IN
Member Since: 12 Mar 2020 | Total Posts: 6
CA by profession and also a CS qualified, fields of expertise are taxation, financial structuring of businesses, company matters, income tax and ROC filing. View Full Profile

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May 2021