“Explore the Presumptive Taxation Scheme under Sections 44ADA and 44AE of the Income Tax Act 1961. Learn how individuals and partnership firms in specified professions can declare income at a prescribed rate, simplifying tax compliance. Understand the eligibility criteria, computation methods, ITR form usage, and the benefits of adopting these schemes for small business owners and professionals.”
Presumptive Taxation Scheme Under Section 44ADA and Section 44AE of Income Tax Act 1961
1. Presumptive Taxation Scheme of Section 44ADA: A person adopting presumptive taxation scheme can declare income at a prescribed rate and relieved from tedious job of maintenance of books of account and also from getting the accounts audited. A resident individual or partnership firm (not LLP) in India engaged in following professions are eligible adopt the scheme of section 44ADA, if the gross receipts during the FY is within 50 Lakhs.
Eligible taxpayers involved in the following professions are allowed to adopt the scheme u/s. 44ADA: Legal, Medical, Engineering or architectural, Accountancy, Technical consultancy, Interior decoration, or any other profession notified by CBDT.
Computation of taxable income u/s.44ADA: Under this scheme, 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%. 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. In case, a person declares income at lower rate (less than 50%), 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 to get his accounts audited as per section 44AB.
Use of ITR form: ITR-4 form is to be used for filing of Income Tax returns by the taxpayers adopting the presumptive taxation scheme under section-44ADA.
2. Presumptive Taxation Scheme of Section 44AE: The scheme of section 44AE gives relief to small taxpayers (individual, HUF, Firm, or Company) engaged in the business of plying, hiring or leasing of goods carriages, subject to not having more than 10 goods vehicles at any time during the Financial Year. Taxpayers adopting this scheme are relieved from tedious job of maintenance of books of account and also from getting their accounts audited.
Computation of income under this scheme: For Heavy Goods Vehicle (Gross vehicle weight > 12000 K.g), income is computed at the rate of Rs. 1,000 per ton of gross vehicle wgt per month or part of month during which the vehicle is owned by taxpayer. In case of vehicles other than heavy goods vehicle, income is computed at the rate of Rs.7,500 per month or part of month during which the vehicle is owned by taxpayer. If the actual income is higher than the presumptive rate (Rs. 1,000/Rs. 7,500), then such higher income can be declared. 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. 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. 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 the assets used in such business shall be calculated as if depreciation as per section-32 is claimed and been actually allowed. In case a person declares his income at lower rate (i.e., at less than Rs. 1,000 per ton or Rs. 7,500 per goods vehicle per month), he is required to maintain the books of account as per the provisions of section 44AA and also to get his accounts audited as per the provisions of section 44AB.
Use of ITR form: ITR – 4 form is to be used for filing of Income Tax returns by the taxpayers adopting the presumptive taxation scheme under section 44AE.
Conclusion: Presumptive taxation scheme is a simplified taxation scheme initiated by government for the benefit of small business owners and professionals. It helps them to report their income/profit to the Income tax department and pay tax on the basis of a presumed income/profit without keeping detailed books of accounts or getting their accounts audited. By choosing this scheme, taxpayers can save their valuable time and money. But, it is essential to ensure that the declared income on presumptive basis is up-to a reasonable standard.
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