Presumptive Taxation Scheme: Eligibility, Benefits, and Computation

Discover the concept of the presumptive taxation scheme introduced by the government to provide relief to small taxpayers. Learn about the eligibility criteria for different professions and businesses, the benefits of disclosing income under Presumptive Taxation Scheme, and the computation methods for various sections. Find out who is not eligible and understand the implications of opting out. Get insights into Presumptive Taxation Scheme for educational purposes.

What is presumptive taxation scheme?

The government has introduced the presumptive taxation scheme to give relief to the small taxpayers from hectic job of maintaining books of accounts and getting them audited. The act has framed sections 44AD, 44ADA and 44AE.

Eligibility for opting presumptive taxation scheme?

1. A person resident in India and engaged in following professions namely :-

2. Legal

3. Medical

4. Engineering

5. Architecture

6. Accountancy

7. Technical consultancy

8. Interior Decoration or

9. Other professions as notified by CBDT

Whose gross receipts/ turnover does not exceed Rs. 50 lacs during the financial year are eligible to file return u/s 44ADA. However, as per Budget 2023 limit has been revised and has increased to Rs. 75 lacs if 95% of total receipts are through online channels.

2. Any person engaged in the business of hiring, plying or leasing of goods carriage and who does not own more than 10 vehicle at any point during the year can opt for filing of return u/s 44AE.

3. Other resident small taxpayers (i.e. individual, HUF, partnership firm except LLP) whose gross total turnover does not exceed Rs. 2 crore in a financial year can opt to file return under presumptive scheme u/s 44AD. However, as per Budget 2023 the limit has been revised and has been increased to Rs. 3 crore if 95% of total receipts are from online channel.

Who are not eligible to opt for presumptive taxation scheme?

1. Non residents

2. Persons who have any claims towards deduction u/s 10A/10AA/10B/10BA or u/s 80HH to 80RRB in the said financial year.

3. Agency business

4. Commission & brokerage

5. Companies and LLP

Benefits for disclosing income under presumptive taxation scheme:-

1. No need to maintain books of accounts or get the books audited

2. Person opting to file return under this scheme is liable to pay 100% advance tax by 15^th March of previous year.

3. Reduction in compliances and easy return filing.

Computation of income under presumptive taxation scheme :-

1. Sec 44AD –

Minimum net income should be 8% of total receipts if receipts are from modes other than that of banking channel. If receipts are through banking channel minimum net income should be 6% of total receipts.

In easier words :-

2. Sec 44ADA –

50% of total gross receipts should be declared as income.

3. Sec 44AE –

For Heavy vehicles – Rs. 1,000 per tonne per vehicle for every month or part thereof.

For Other vehicles – Rs. 7,500 per vehicle per month or part thereof.

Note – There is option to declare income at higher rate than the prescribed rate.

Can lower income be declared under presumptive taxation :-

Yes, a person can declare his income at lower rate than those prescribed under section 44AD, 44ADA, 44AE however, then he is required to main books of accounts and get the books audited as prescribed as per Income Tax Act, 1961.

Can I opt out from presumptive taxation scheme?

If one opts for declaring income under presumptive taxation scheme than he has to declare income under the said scheme for 5 years in continuation and if he chooses to opt out from the scheme than will be barred from resuming for a period of 5 years.

Note – These are the thoughts of author and are only for educational purpose.

Source – https://incometaxindia.gov.in