Presumptive Taxation Scheme (Section 44AD/44ADA/44AE/44B/44BB/44BBB/44BBA of Income Tax Act,1961)
Presumptive Taxation Scheme(PTS) gives small taxpayers a much-needed relief in relation to maintenance of books of accounts and audit under section 44AA and 44AB of Income Tax Act, 1961 respectively. Assessee declaring income under PTS are not required to maintain books of accounts nor they are required to get them audited under Income Tax Act.
Normal Provision vis-à-vis Presumptive Taxation Scheme:
A. Under normal provision, income is calculated as below:-
Revenue XXXX
Less: Expenses XXXX
Income XXXX
B. Under PTS income is deemed to be certain % of Revenue or a Fixed amount.
44AD: Special provision for computing profits and gains of business on presumptive basis
1. The scheme is available to Eligible Assessee engaged in Eligible business.
Eligible Assessee means:-
Resident Individual
Resident HUF
Resident Partnership Firm
—–who has not claimed deduction u/s 10A/10AA/10B/10BA or 80HH to 80RRB in the relevant year.
Eligible Business means:-
Business with Turnover/Gross Receipt upto 2 crore.
2. Deemed Income = 8% of Total Turnover/Gross Receipt under Profit and Gain from Business or Profession.
Incentive to Non-Cash Transaction: If the Total Turnover or Gross Receipt is received through banking channel then Deemed Income will be 6% instead of 8%.
Banking Channel means account-payee cheque or Bank Draft, Debit/Credit Card, UPI etc.
3. Claiming Lower Income under Normal Provision – 44AD(4)
Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five succeeding assessment years under Normal Provision, then he shall NOT be eligible to claim the benefit of the provisions of this section(PTS) for five assessment years subsequent to the assessment year in which the profit has been declared under Normal Provision
Example: X declared income u/s 44AD in FY 2019-20 and FY 2020-21
In FY 2021-22 – X declared income under Normal Provision.
Now, next 5 years from FY 2023-FY 2027, he cannot choose Presumptive tax scheme u/s 44AD
4. Mandatory maintenance of books u/s 44AA and audit u/s 44AB
If above section is applicable to assessee and total income exceeds the maximum amount which is not chargeable to income-tax, then he is required to maintain Books of Accounts u/s 44AA and get them Audited u/s 44AB of IT Act 1961.
5. Business expense allowance: Deduction u/s 30 to 38 are deemed to have already been provided and no further deductions are allowed.
6. Written Down Value of Assets: The WDV of any asset used for the purposes of profession shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant AY.
7. Deduction under Chapter VIA – Deduction under Chapter VIA Allowed except 80HH to 80RRB
8. Non-Applicability: Section 44AD is not applicable to the followings:
- Person earning income in the form of Brokerage and Commission
- Agency Business
- Notified profession u/s 44AA – (Separate section 44ADA)
- Business of Plying, Hiring, Leasing goods carriage. (Separate section 44AE)
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44AE: Special provision for computing profits and gains of business of plying, hiring or leasing goods carriages.
1. The section is applicable to Person engaged in the business of Plying, Hiring, Leasing of Goods Carriage AND Owns not more than 10 Goods carriage at any point of time in the Previous Year.
2. Deemed Income:
a) Heavy Goods Vehicles – Rs 1,000/ton per month or part of the month for which vehicle is owned by assessee.
b) Other than Heavy Vehicle- Rs 7,500 per month or part of month for which vehicle is owned by assessee.
Heavy Goods Vehicle – any goods carriage, the gross vehicle weight of which > 12000 Kg.
Gross Vehicle or Unladen vehicle weight should be considered.
3. Vehicle taken on loan or Hire Purchase: An assessee, who is in possession of a goods carriage, whether taken on hire purchase or on instalments and for which the whole or part of the amount payable is still due, shall be deemed to be the owner of such goods carriage.
4. Business expense allowance: Deduction u/s 30 to 38 are deemed to have already been provided and no further deductions are allowed.
5. Salary and Interest to Partner: In case of Partnership Firm, the salary and interest paid to its partners shall be deducted from the income computed under this scheme subject to the conditions and limits specified in clause (b) of section 40.
6. Written Down Value of Assets: The WDV of any asset used for the purposes of profession shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant AY.
7. Sections 44AA Maintenance of Books of Accounts and 44AB Tax Audit shall not apply and in computing the monetary limits under those sections, the gross receipts or, as the case may be, the income from the said business shall be excluded.
Claiming lower Income under Normal Provision: Assessee may claim lower profits and gains under normal provision than the profits and gains under Presumptive scheme, if he keeps and maintains such books of account u/s 44AA and gets his accounts audited and furnishes a report of such audit as required u/s 44AB.
8. Deduction under Chapter VIA – Deduction under Chapter VIA Allowed except 80HH to 80RRB
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44ADA:Special provision for computing profits and gains of profession on presumptive basis
1. The scheme is applicable to Resident Individual and Resident Partnership Firm (Other than LLP) engaged in Notified Profession specified u/s 44AA of Income Tax Act, 1961 AND whose Gross Receipt does not exceed 50 lakhs rupees in the previous year.
2. Deemed Income = 50% of Gross Receipt under Profit and Gain from Business or Profession.
3. Business expense allowance: Deduction u/s 30 to 38 are deemed to have already been provided and no further deductions are allowed.
4. Written Down Value of Assets: The WDV of any asset used for the purposes of profession shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant AY.
5. Claiming lower Income under Normal Provision: Assessee may claim lower profits and gains under normal provision than the profits and gains under Presumptive scheme. Accordingly, he is required to maintains books of accounts u/s 44AA and gets his accounts audited u/s 44AB provided the total income exceeds the maximum amount which is not chargeable to income-tax.
6. Deduction under Chapter VIA – Deduction under Chapter VIA Allowed except 80HH to 80RRB
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44B:Special provision for computing profits and gains of shipping business in the case of non-residents
1. Applicable to Shipping business of Non Resident
2. Deemed Income = 7.5% of following:
a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the carriage of passengers, livestock, mail or goods shipped at any port in India; AND
b) the amount received or deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers, livestock, mail or goods shipped at any port outside India.
The above amount includes the amount paid or payable or received or deemed to be received, as the case may be, by way of demurrage charges or handling charges or any other amount of similar nature.
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44BB: Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils.
1. Applicable to Non Resident engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils.
2. Deemed Income = 10% of following:-
a) The amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India; AND
b) The amount received or deemed to be received in India by or on behalf of the assessee on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India.
3. Claiming lower Income under Normal Provision: Assessee may claim lower profits and gains under normal provision than the profits and gains under Presumptive scheme, if he keeps and maintains such books of account u/s 44AA and gets his accounts audited and furnishes a report of such audit as required u/s 44AB.
Provided that this sub-section shall not apply in a case where the provisions of section 42 or section 44D or section 44DA or section 115A or section 293A apply for the purposes of computing profits or gains or any other income referred to in those sections.
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44BBA:Special provision for computing profits and gains of the business of operation of aircraft in the case of non-residents.
1. Applicable to Aircraft business of Non Resident
2. Deemed Income – 5% of Following:-
a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the carriage of passengers, livestock, mail or goods from any place in India; AND
b) the amount received or deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers, livestock, mail or goods from any place outside India.
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44BBB:Special provision for computing profits and gains of foreign companies engaged in the business of civil construction, etc., in certain turnkey power projects.
1. The scheme is applicable to Non-Resident engaged in the business of civil construction or the business of erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project approved by the Central Government in this behalf.
2. Deemed Income – 10% of below:
The amount paid or payable (whether in or out of India) to the said assessee or to any person on his behalf on account of such civil construction, erection, testing or commissioning shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”.
3. Claiming lower Income under Normal Provision: Assessee may claim lower profits and gains under normal provision than the profits and gains under Presumptive scheme, if he keeps and maintains such books of account u/s 44AA and gets his accounts audited and furnishes a report of such audit as required u/s 44AB.
Thank You!
CA Tarique Khichi
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