Article discusses about Meaning of presumptive taxation scheme, Presumptive Taxation Scheme of Section 44AD,  Section 44ADA, Section 44AE, For whom the presumptive taxation scheme of is designed?, Businesses not covered under the presumptive taxation scheme, No need to maintain books of account as prescribed under section 44AA, Eligible taxpayer and eligible business for the purpose of the presumptive taxation scheme.

TAX ON PRESUMPTIVE BASIS IN CASE OF CERTAIN ELIGIBLE
BUSINESSES OR PROFESSIONS

To give relief to small taxpayers from the tedious job of maintenance of books of account and from getting the accounts audited, the Income-tax Act has framed the presumptive taxation scheme under sections 44AD, section 44ADA and section 44AE. In this part you can gain knowledge about various provisions of the presumptive taxation scheme of section 44AD, section 44ADA and section 44AE.

Meaning of presumptive taxation scheme

As per the Income-tax Act, a person engaged in business or profession is required to maintain regular books of account and further, he has to get his accounts audited. To give relief to small taxpayers from this tedious work, the Income-tax Act has framed the presumptive taxation scheme under sections 44AD, 44ADA and 44AE.

A person adopting the presumptive taxation scheme can declare income at a prescribed rate and, in turn, is relieved from tedious job of maintenance of books of account and also from getting the accounts audited.

Meaning of presumptive taxation scheme

For small taxpayers the Income-tax Act has framed two presumptive taxation schemes as given below:

1) The presumptive taxation scheme of section 44AD.

2) The presumptive taxation scheme of section 44ADA.

3) The presumptive taxation scheme of section 44AE.

Presumptive Taxation Scheme of Section 44AD

For whom the presumptive taxation scheme of section 44AD is designed?

The presumptive taxation scheme of section 44AD is designed to give relief to small taxpayers engaged in any business (except the business of plying, hiring or leasing of goods carriages referred to in section 44AE).

The presumptive taxation scheme of section 44AD can be adopted by following persons :

1) Resident Individual

2) Resident Hindu Undivided Family

3) 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.

Businesses not covered under the presumptive taxation scheme of section 44AD

The scheme of section 44AD is designed to give relief to small taxpayers engaged in any business, except the following businesses:

> 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

Apart from above discussed businesses, a person carrying on profession as referred to in section 44AA(1)is not eligible for presumptive taxation scheme.

An insurance agent cannot adopt the presumptive taxation scheme of section 44AD

A person who is earning income in the nature of commission or brokerage cannot adopt the presumptive taxation scheme of section 44AD. Insurance agents earn income by way of commission and, hence, they cannot adopt the presumptive taxation scheme of section 44AD.

A person engaged in a profession as prescribed under section 44AA(1) cannot adopt the presumptive taxation scheme of section 44AD

A person who is engaged in any profession as prescribed under section 44AA(1) cannot adopt the presumptive taxation scheme of section 44AD.

A person whose total turnover or gross receipts for the year exceed Rs. 2,00,00,000 cannot adopt the presumptive taxation scheme of section 44AD

The presumptive taxation scheme of section 44AD can be opted by the eligible persons, if the total turnover or gross receipts from the business do not exceed Rs. 2,00,00,000. In other words, if the total turnover or gross receipt of the business exceeds Rs. 2,00,00,000 then the scheme of section 44AD cannot be adopted.

Manner of computation of taxable business income under the normal provisions of the Income-tax Act, i.e., in case of a person not adopting the presumptive taxation scheme of section 44AD

Generally, as per the Income-tax Act, the taxable business income of every person is computed as follows:

Particulars Amount
Turnover or gross receipts from the business XXXXX
Less : Expenses incurred in relation to earning of the income (XXXXX)
Taxable Business Income XXXXX

Manner of computation of taxable business income under the normal provisions of the Income-tax Act, i.e., in case of a person not adopting the presumptive taxation scheme of section 44AD

For the purpose of computing taxable business income in the above manner, the taxpayers have to maintain books of account of the business. Income will be computed on the basis of the information revealed in the books of account.

The manner of computation of taxable business income in case of a person adopting the presumptive taxation scheme of section 44AD

In case of a person adopting the provisions of section 44AD, income is computed on presumptive basis at the rate of 8% of the turnover or gross receipts of the eligible business for the year.

In order to promote digital transactions and to encourage small unorganized business to accept digital payments, section 44AD is amended with effect from the assessment year 2017-18 to provide that income shall be computed at the rate of 6% instead of 8% 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 during the previous year or before the due date of filing of return under section 139(1).

Hence, in case of a person adopting the provisions of section 44AD, income will not be computed in normal manner as discussed earlier (i.e., Turnover less Expenses) but will be computed @ 6% or 8%, as the case may be, of the turnover or gross receipt.

However, a person may voluntarily disclose his business income at more than 8% or 6%, as the case may be, of turnover or gross receipt.

The presumptive income computed as per the prescribed rate is the final income and no further expenses will be allowed or disallowed

Under the normal provisions of the Income-tax Act, taxable business income will be computed after allowing deduction in respect of expenses which are deductible as per the Income-tax Act and after disallowing expenses which are not deductible as per the Income-tax Act.

In case of a person who is opting for the presumptive taxation scheme of section 44AD, the provisions of allowance/disallowances as provided for under the Income-tax Act will not apply and income computed at the presumptive rate of 6% or 8% will be the final taxable income of the business covered under the presumptive taxation scheme. In other words, the income computed as per the prescribed rate will be the final taxable income of the business covered under the presumptive taxation scheme and no further expenses will be allowed or disallowed.

While computing income as per the provisions of section 44AD, 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.

No need to maintain books of account as prescribed under section 44AA

Section 44AA deals with provisions relating to maintenance of books of account by a person engaged in business/profession. Thus, a person engaged in business/profession has to maintain books of account of his business/profession according to the provisions of section 44AA.

In case of a person engaged in a business and opting for the presumptive taxation scheme of section 44AD, the provisions of section 44AA relating to maintenance of books of account will not apply. In other words, if a person adopts the provisions of section 44AD and declares income @ 6% or 8% (as the case may be) of the turnover, then he is not required to maintain the books of account as provided for under section 44AA in respect of business covered under the presumptive taxation scheme of section 44AD.

Payment of advance tax in respect of income from business covered under section 44AD

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.

Provisions to be applied if a person does not opt for the presumptive taxation scheme of section 44AD and declares income at a lower rate, i.e., at less than 8%

A person can declare income at lower rate (i.e., at less than 6% or 8%), 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.

Consequences if a person opts out from the presumptive taxation scheme of section 44AD

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. [For example, an assessee claims to be taxed on presumptive basis under Section 44AD for AY 2017-18. For AY 2018-19 and 2019-20 and he offers income on basis of presumptive taxation scheme. However, for AY 2020-21, 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 five AYs, i.e. from AY 2021-22 to 2025-26.]

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

For whom the presumptive taxation scheme of section 44ADA is designed?

The presumptive taxation scheme of section 44ADA is designed to give relief to small taxpayers engaged in specified profession.

Eligible persons who can take advantage of the 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

Manner of computation of taxable income in case of a person adopting the presumptive taxation scheme of section 44ADA

In case of a person adopting the provisions of section 44ADA, income will be computed on presumptive basis, i.e. @ 50% of the total gross receipts of the profession. However such person can declare income higher than 50%.

In other words, in case of a person adopting the provisions of section 44ADA, income will not be computed in normal manner but will be computed @50% of the gross receipts.

The presumptive income computed @ 50% is the final income and no further expenses will be allowed

A person who adopts the presumptive taxation scheme is deemed to have claimed all deduction of expenses. Any further claim of deduction is not allowed after declaring profit @ 50%.

While computing income as per the provisions of section 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.

Payment of advance tax in respect of income from professions covered under section 44ADA

Any person opting for the presumptive taxation scheme under section 44ADA is liable to pay whole amount of advance tax on or before 15th March 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.

Maintenance of books of account if a person opts for presumptive taxation scheme of section 44ADA

In case of a person engaged in a specified profession as referred in section 44AA(1) and opts for presumptive taxation scheme of section 44ADA, the provision of section 44AA relating to maintenance of books of account will not apply. In other words, if a person opt for the provisions

of section 44ADA and declares income @50% of the gross receipts, then he is not required to maintain the books of account in respect of specified profession.

Provisions to be applied if a person does not opt for the presumptive taxation scheme of section 44ADA and declares his income from profession at lower rate (i.e. less than 50%)

A person can declare income at lower rate (i.e. less than 50%), 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.

Presumptive Taxation Scheme of Section 44AE Applicability of the presumptive taxation scheme of section 44AE

The scheme of section 44AE is designed to give relief to small taxpayers engaged in the business of plying, hiring or leasing of goods carriages.

Eligible taxpayer and eligible business for the purpose of the presumptive taxation scheme of section 44AE

The provisions of section 44AE are applicable to every person (i.e., an individual, HUF, firm, company, etc.).

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.

A person who owns more than 10 goods vehicles cannot adopt the presumptive taxation scheme of section 44AE

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.

The important criterion of the scheme is the restriction on owning of not more than 10 goods vehicles at any time during the year. Thus, if a person owns more than 10 goods vehicles at any time during the year, then he cannot take advantage of this scheme.

The manner of computation of taxable business income in case of a person adopting the presumptive taxation scheme of section 44AE

In case of a person who is willing to opt for the presumptive taxation scheme of section 44AE, 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 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.

Illustration

Mr. Khush is engaged in the business of plying, hiring or leasing of goods carriage. Throughout the year 2018-19 he owned 9 goods vehicles (other than heavy goods vehicles). What will be the taxable income from the business of plying, hiring or leasing of goods carriages if he adopts the provisions of section 44AE?

**

As per the provisions of section 44AE, 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.

In the present case, Mr. Khush owned 9 goods vehicles (other than heavy goods vehicles) throughout the year and, hence, income will be computed as follows:

Particulars Amount (Rs.)
Income per month per goods vehicle 7,500
(×) No. of goods vehicles 9
Monthly income as per the provisions of section 44AE from 9 goods vehicles 67,500
(×) No. of months in the year during which the vehicles were owned 12
Total income from business of plying, hiring or leasing goods carriages as per the provisions of section 44AE 8,10,000

Illustration

Mr. Sunil engaged in the business of plying, hiring or leasing goods carriages. He owned 5 heavy goods vehicle having gross weight of 13,000 kilograms and 4 other goods vehicle during the previous year 2018-19. What will be his taxable income as per the provisions of section 44AE?

**

As per the provisions of section 44AE, 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.

In the present case, Mr. Sunil owned total 9 goods vehicles in which 5 are heavy goods vehicles having gross weight of 13,000 Kilograms. Hence, income will be computed as follows:

Particulars Rs.
Income per month per heavy goods vehicle ( 13,000 kilograms i.e., 13 ton) 1,000 x 13
(x) No. of heavy goods vehicle 5
Monthly income in case of heavy goods vehicleas per the provisions of section 44AE 65,000
(x) No. of months in a year 12
Total income as per the provisions of section 44AE from heavy goods vehicle (A) 7,80,000
Income per month per goods vehicle (other than heavy vehicle) 7,500
(x) No. of vehicles other than heavy goods vehicle 4
Monthly income as in case of vehicles other than heavy goods vehicleas per the provisions of section 44AE 30,000
(*) No. of months in a year 12
Total income as per the provisions of section 44AE from vehicles other than heavy goods vehicle(B) 3,60,000
Total income from business of plying, hiring or leasing goods carriages as per the provisions of section 44AE (A+B) 11,40,000

The presumptive income computed at the rate of Rs. 1,000 per ton or Rs. 7,500 per goods vehicle per month is the final income and no further expenses will be allowed or disallowed

Under the normal provisions of the Income-tax Act, taxable business income will be computed after allowing deduction in respect of expenses which are deductible as per the Income-tax Act and after disallowing expenses which are not deductible as per the Income-tax Act.

In case of a person who is opting for the presumptive taxation scheme of section 44AE, the provisions of allowance/disallowances as provided for under the Income-tax Act, will not apply and income computed at the presumptive rate of Rs. 1,000/Rs. 7,500 will be the final income. In other words, the income computed at the rate of Rs. 1,000/Rs. 7,500 per goods vehicle per month will be the final taxable income of the business and no further expenses will be allowed or disallowed.

However, in case of a taxpayer, being a partnership firm, opting for the presumptive taxation scheme, from the income computed at the presumptive rate of Rs. 7,500 per goods vehicle per month, further deduction can be claimed on account of remuneration and interest paid to partners (computed as per the Income-tax Act).

While computing income as per the provisions of section 44AE, 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.

No need to maintain books of account as prescribed under section 44AA

Section 44AA of the Income-tax Act, 1961 has provisions relating to maintenance of books of account by a person engaged in business/profession. Thus, a person engaged in business/profession has to maintain books of account of his business/profession according to the provisions of section 44AA.

No need to maintain books of account as prescribed under section 44AA

In case of a person opting for the presumptive taxation scheme of section 44AE, the provisions of section 44AA relating to maintenance of books of account will not apply. In other words, if a person adopts the provisions of section 44AE and declares his income at the rate of Rs. 7,500 per goods vehicle per month, then he is not required to maintain the books of account as provided for under section 44AA in respect of business covered under the presumptive taxation scheme of section 44AE.

Applicability of the provisions relating to payment of advance tax

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.

Provisions to be applied if a person does not opt for the presumptive taxation scheme of section 44AE and declares income at a lower rate, i.e., at less than Rs. 1,000 per ton or Rs. 7,500 per goods vehicle per month

A person can declare his income at lower rate (i.e., at less than Rs. 1,000 per ton or Rs. 7,500 per goods vehicle per month). However, if he does so, then he is required to maintain the books of account as per the provisions of section 44AA and has to get his accounts audited under section 44AB.

Republished with amendment.

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139 responses to “Presumptive taxation U/s. 44AD, 44ADA, 44AE with FAQs”

  1. manish says:

    can housekeeping or repair/maintanance contractor file u/s 44ad?

    reply me on nakrani.m@gmail.com

  2. Mukesh Kumar Sharma says:

    Can I file my ITR after 31st October having a turnover of Rs.12600000/under sec.44AD by ppaying RS.5000/penalty.

  3. DR.SHIV NARAYAN SHARMA says:

    If a doctor has earning by dual mode no. 1. By providing services as consultancy and other measures up to 17 lacs and
    2. By sale of medicine gross profit upto 15 lacs
    Then how he can file his return u/a 44ada.

  4. Ravinder says:

    If the assesee filed ROI U/S 44AD and made the cash payments of Rs.10000/- more against the business expense. Is it doing right or not?

  5. BHERU LAL SHARMA says:

    I HAVE BOTH SALES WHICH PAYMENT RECEIVED IN CASH OR DIGITALY
    CAN I SHOW MY INCOME AS PER SEC44AD
    ON CASH SALES@8%
    ON oTHER SALES@6% ( Sales which payment received in electronic mode)

  6. RANJAN says:

    I HAVE BUSINESS INCOME AND I OPTED FOR PRESUMPTIVE INCOME,I WANT TO KNOW HOW TO FILE INCOME TAX RETURN AND WHAT ARE THE DEDUCTIONS ALLOWED,PLEASE SEND A PDF FORMAT

  7. Nitin Ohol says:

    I have one client his income is Rs.34 Lacs for F.Y.2017-18 as a profession and he is NRI can he claim 50% expenses of receipts (34 Lacs).

    Kindly guide on this.

  8. ashish singhal says:

    Can any individual who got his books of accounts audited u/s 44AD(profit declared less than 8%) in A.Y. 2017-18 can opt in for presumpt8ve scheme u/s 44AD in A.Y. 2018-19? Please explain with the relevant provisions.

    Hint : As per my interpretation he can do so.

    Reply as soon as possible.

  9. GK says:

    I HAVE BEEN FILLING MY RETURN IN ITR 3 TILL NOW… WATER PLANT WITH LESS THAN 18 L TURNOVER, CAN I SWITCH TO THIS SCHEME?

  10. Praveen Kumar says:

    Dear sir,

    Please help me 44Ad main point sho in balance sheet Y/A 2018-19
    Please help

  11. Tanmoy Patra says:

    I have salary income and renewal commission income from insurance agency which i did before getting service. Now i get both Form 16 and Form 16A. Which ITR form should I file to tax return?

  12. OXFORD ENCLAVE says:

    please inform when updated regularly

  13. Manan says:

    sir,
    I am Doctor by profession,
    Thanks for detailed article on presumption income tax.
    I have query, If my actual professional income for financial year 2017-18 Rs 32 lacs and actual expense Rs 10 lacs. So my actual Profit will be 22 lacs. If i adopt presumption taxation, then my profit will be 50% of Rs 32 lac that is 16 lacs.So I have to pay tax on 16 lacs according to income tax slab.
    But difference between actual profit taht is Rs 22 lac and presumtive profit 16 lac,around 6 lac.
    So should i have to pay tax on 6 lac also?
    Or i can carry this 6 lac profit in balance sheet without paying tax on it?
    Please guide me for this.

    Thank you very much

  14. Raghu says:

    I have Earned the section 194j Income tax act, which Itr to Filed the returns of assesment year 2018-19 and my thinking ITR4 44AD its possible, please replay sir asa possible.

  15. md bhat says:

    for preseumptive whether gross turnover also included gst collected

  16. Dhosp says:

    I am a partner in a firm which runs a medical clinic. Other partner is a medical doctor while I am a investor and manages the space.
    Can my partnership firm file income tax return under section 44ADA using ITR form 4 for AY-18-19?

  17. Sai Sreekar says:

    Can an assessee claim 44ad for one of his businesses out of more than one?

  18. V k agrawal says:

    Can sr citizen claim deduction under section 80 d on medical expenses done on treatment in a private hospital.
    Pls confirm

    • satishbhai says:

      partnership firm want to file income tax return with balancesheet and suppose it declares profit lower than 8% of turnover.but it maintain books of accounts and file return as per book profit which is lower than 8% it has not turnover more than 2 crore

      what would be legal position

  19. Mahesh Kumar says:

    But section 44ADA is applicable to only those professionals who have total gross receipts up to Rs. 50 lakhs. Those having more than 50 lakhs are not eligible for this scheme.

  20. Narinder Rawat says:

    But how to co-relate it with GST act where 20 lac is limit for taking GST no. and if one gets registered in GST submitting all purchase and sale details is mandatory inclusive of all expenses except salary paid figures, I think this section is contradictory to GST act which requires strict maintenance of account books.

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