Presumptive Taxation under Section 44AD of Income Tax Act

Why Presumptive Taxation required?

Considering the various compliances problems faced by small taxpayers (like Shopkeepers, Small Traders, Professionals, Good Transport Agencies etc.) regarding maintenance of Book of Accounts and requirement of Audit under Income Tax Act. Government has introduced a Presumptive Taxation Scheme for Small Taxpayers.

Who can claimed benefits under this Scheme?

SECTION 44AD- SPECIAL PROVISIONS FOR COMPUTING PROFITS AND GAINS OF BUSINESS ON PRESUMPTIVE BASIS

(Read with Section 44AA, Section 44AB, Section 30 to Section 38, Read with Notification 8/2020 of Income Tax Act, 1961)

Eligibility

1. Assessee should be Individual, HUF or Firm (Not LLP)
2. Assessee should be resident
3. Turnover of Assessee should not exceed 2 crore
4. Assessee should not be engaged in the business of Commissioning or Brokerage, Good Transport Agency (Separate Section is there for them), Agency & Profession.

Conditions

1. Presumptive income should be 8% of Turnover or Gross Receipts or Higher Profits (6% in case where all payments are received in Prescribed mode as prescribed in Notification 8/2020) Note- In case payments are received partially in cash and partially in prescribed modes then Proportionately calculation to be done.
2. No Deduction of Section 30 to 38 will be allowed even the Unabsorbed Depreciation or Partner’s Remuneration is not allowed.
3. However Deductions under Chapter VI A will be allowed to Assessee.
4. However, WDV of the Assets has to be reduced as per the normal provisions of Section 32 but Depreciation claimed will not be allowed.
5. If Profits are declared under Presumptive basis then Assessee should continue showing income under this section for 5 continuous years. If there is any break then Assesse will not be eligible for next 5 years under this section.
6. Assessee has to deposit the Advance Tax in 1 instalment i.e By 15th March.
7. Any losses of any other business can be setoff from presumptive income under this Section

Obligations of Maintenance of Books of Accounts under 44AA and Requirement of Audit under 44AB

Note: For Assessee engaged in Plying, Hiring or Leasing of Goods Carriage- Separate Section 44AE

Note: For Assessee who are Professionals- Separate Section 44ADA

We will deal above Sections in upcoming Articles.