Are you a small business that is constantly looking to strengthen your routes in the market but stuck up with maintaining a balance sheet? Or a professional freelancer who is continuously caught up with different projects and has no time to main financial records? If yes, then we think we can relieve your burden regarding tax saving as you no longer need to worry when the tax filing season approaches.
What Is A Presumptive Taxation Scheme (PTS) Scheme?
The Presumptive Taxation Scheme, according to sections 44AA of the Income-tax Act, 1961, was introduced to relieve the small business owners and income professionals from maintaining a book of accounts. They will now be enabled to declare their total taxable income at a predefined rate. This scheme has been prescribed under three sections as specified below:
Section 44AD: Under this section, the presumptive scheme is basically available for small businesses or firms who fulfill the criteria mentioned below:
Once you are approved of the eligibility, your business should also be able to comply with the conditions specified below in accordance with the Income Tax Act.
Section 44ADA: Section 44ADA is specially designed for small professionals engaged in any of the professions listed below:
Any professional whose total gross receipts are not more than Rs.50 lakhs in the previous year; the income will be computed @ 50% of the total gross receipts of the profession.
Section 44AE: Under this section, all the small taxpayers involved in any kind of business, such as plying, renting, or leasing of goods and carriages, will be able to avail of the benefits. These taxpayers can be –
According to this to section, their income would be calculated as specified below:
In addition to these sections, when you opt for the presumptive taxation scheme, you must –
Let’s quickly have a look at how will it be computed for a salaried individual under section 44ADA:
Example: Pavan is a full-time salaried person & a part-time freelancer, so let’s see how he can file tax under PTS scheme.
Pavan’s Income – Rs. 35,000/Month = Rs. 4,20,000
House Rent Allowance – Rs. 90,000
Standard Deduction – 50,000
Taxable Income – 2,80,000
Income from Other Sources:
Gross Income from freelancing projects – Rs. 6,00,000
According to section 44ADA, Pavan’s total taxable income will be calculated as follows:
50% of Gross is Taxable Income – 50% of Rs. 6,00,000 = Rs. 3,00,000
Total Taxable Income = Rs. 2,80,000 + Rs. 3,00,000 = Rs. 5,80,000