To give relief to small taxpayers from maintenance of books of account and from getting the accounts audited, the Income-tax Act has framed the presumptive taxation scheme u/s 44AD, 44ADA and 44AE.
Computation of Business Profit on Presumptive Basis [Sec. 44AD]
Applicable to :
A resident individual, resident Hindu undivided family or a resident partnership firm
Note: The provision is not applicable in case of the following:
- Limited liability partnership firm
- A person carrying on profession as referred to u/s 44AA
- A person earning income in the nature of commission or brokerage; or
- A person carrying on any agency business
- A person carrying on the business of plying, hiring or leasing goods carriages referred to in sec. 44AE
Conditions :
a. Eligible Business: Assessee must be engaged in any business other than the business referred above
b. Maximum Turnover: Total turnover or gross receipts in the previous year of eligible business should not exceed ` 2 crore.
c. Restriction on claiming deductions: The assessee has not claimed any deduction u/s 10AA or 80HH to 80RRB in the relevant assessment year.
Estimated Income :
- Where amount of turnover or gross receipts is received by an account payee cheque or account payee bank draft or use of ECS or through other prescribed electronic modes during the previous year or before the due date of filing return of income – 6% of such turnover or receipts
- In any other case – 8% of such turnover or receipts
However, a taxpayer can voluntarily declare a higher income in his return.
Notes :
1. No Deduction in respect of expenses: The estimated income is comprehensive and no further deductions relating to expenses shall be allowed.
2. Depreciation: Depreciation is deemed to have been already allowed. The written down value of asset will be calculated, as if depreciation has been allowed.
3. Deductions: The above estimated income is aggregated with other income of the assessee, from any other business or under any other heads of income. Further deduction under chapter VIA (other than those mentioned above) shall be available to the assessee as usual.
4. Brought forward loss: Brought forward loss (if any) shall be subtracted from such estimated income as per provisions of this Act.
5. Provision is not applicable [Sec. 44AD(4)]: Where an eligible assessee:
a. declares profit for any previous year in accordance with the provisions of this section (i.e., specified percentage of the turnover); &
b. declares lower profit (i.e., less than specified percentage of the turnover) for any of the 5 assessment years relevant to the previous year succeeding aforesaid previous, then he shall not be eligible to claim the benefit of the provisions of this section for 5 assessment years subsequent to the assessment year relevant to the previous year in which he has declared lower profit.
E.g. an assessee claims to be taxed on presumptive basis u/s 44AD for A.Y. 2020-21. For A.Y. 2021-22 and 2022- 23, he offers income on the basis of presumptive taxation scheme. However, for A.Y. 2023-24, he did not opt for presumptive taxation Scheme. In this case, he will not be eligible to claim benefit of presumptive taxation scheme for next 5 A.Y.s, i.e. from A.Y. 2024-25 to 2028-29.
6. Effect on the assessee if sec. 44AD(4) is applicable: An assessee to whom provision of sec. 44AD(4) is applicable and whose total income exceeds the maximum amount which is not chargeable to tax (i.e., basic exemption limit), he shall be required:
- To maintain books of account and other documents as required u/s 44AA; and
- To get his accounts audited and furnish a report of such audit as prescribed u/s 44AB
COMPUTATION OF PROFESSIONAL INCOME ON PRESUMPTIVE INCOME 44ADA
Applicable to : Any resident assesse
Conditions
a. Engaged in Profession: Assessee must be engaged in any profession referred to in sec. 44AA (i.e., Legal, medical, engineering, architectural profession or profession of accountancy, technical consultancy, interior decoration, etc.)
b. Maximum Receipts: Gross receipts of the assessee in the previous year should not exceed ` 50 lakh.
Estimated income
50% of the gross receipts.
However, a taxpayer can voluntarily declare a higher income in his return.
Notes:
1. Deduction u/s 30 to 38: The estimated income is comprehensive and no further deductions u/s 30 to 38 shall be allowed.
2. Depreciation: Depreciation is deemed to have been already allowed. The written down value of asset will be calculated, as if depreciation has been allowed.
3. Deductions: The above estimated income is aggregated with other income of the assessee, from any other business or under any other heads of income. Further deduction under chapter VIA (other than those mentioned above) shall be available to the assessee as usual.
4. Brought forward loss: Brought forward loss (if any) shall be subtracted from such estimated income as per provisions of this Act.
5. Effect if assessee declares lower income: An assessee can declare his income lower than the estimated income as per provision of this section. In such case he will have to:
- Maintain books of account and other documents as required u/s 44AA if his total income exceeds the maximum exemption limit; and
- Get his accounts audited and furnish a report of such audit as prescribed u/s 44AB (irrespective of amount of turnover or gross receipts) if his total income exceeds the maximum exemption limit.
Note: Assessee can change his option from year to year.
BUSINESS OF PLYING, LEASING OR HIRING GOODS CARRAIGE 44AE
Maximum Turnover: Total turnover or gross receipts in the previous year of eligible business should not exceed ` 2 crore.
Conditions:
Number of carriages: Assessee must not own more than 10 goods carriages at any time during the previous year.
Owner of carriages includes a buyer under hire purchase or installment system even if the whole amount is unpaid.
Goods carriage means any motor vehicle constructed or adapted for use solely for the carriage of goods, or any motor vehicle not so constructed or adapted when used for the carriage of goods;
Estimated Income
Income from each goods carriage shall be
1. Heavy – Rs. 1,000 per ton of gross vehicle weight or unladen weight
2. Other – Rs. 7,500
a. Income shall be calculated from the month when assessee acquired the property whether it has been put to use or not.
b. An assessee can declare higher income.
Notes :
1. Heavy goods vehicle means any goods carriage, the gross vehicle weight of which exceeds 12000 kilograms
2. Deduction u/s 30 to 38: The estimated income is comprehensive and no further deductions u/s 30 to 38 shall be allowed.
3. Deduction u/s 40(b): In the case of a firm, deduction in respect of remuneration and interest to partner u/s 40(b) shall be further deductible from income so computed.
4. Depreciation: Depreciation is deemed to have been already allowed. The written down value of asset will be calculated, as if depreciation has been allowed.
5. Deductions: The above estimated income is aggregated with other income of the assessee, from any other business or under any other heads of income. Further deduction under chapter VIA shall be available to the assessee as usual.
6. Brought forward loss: Brought forward loss (if any) shall be adjusted from such estimated income.
7. Maintenance of books of account and audit: An assessee, who estimates income from such business as per section 44AE, or a higher income, is not required to –
- Maintain books of account u/s 44AA; and
- Get his accounts audited u/s 44AB
– in respect of his income from such business.
However, he has to comply with the requirements of both sec. 44AA and 44AB in respect of his other businesses.
Further to note that in computing the monetary limits u/s 44AA and 44AB, the gross receipts or income from the said business shall be excluded.
7. Effect if assessee declares lower income: An assessee can declare his income lower than the estimated income as per provision of this section. In such case he will have to
- Maintain books of account and other documents as required u/s 44AA; and
- Get his accounts audited and furnish a report of such audit as prescribed u/s 44AB irrespective of amount of turnover or gross receipts.
Note: Assessee can change his option from year to year.
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