Article explains What is Presumptive Taxation Scheme, Advantages of Presumptive Taxation Scheme, Eligibility to opt Presumptive Taxation Scheme under section 44AD, Manner of Computation of Taxable Income under Section 44AD, Eligibility to opt Presumptive Taxation Scheme under section 44ADA, Manner of Computation of Taxable Income under Section 44ADA, Eligibility to opt Presumptive Taxation Scheme under section 44AE and Manner of Computation of Taxable Income under Section 44AE.
To reduce the burden of various compliances, Govt. has introduced a scheme of Presumptive Taxation under section 44AD, 44ADA and 44AE of the Income Tax Act 1961. Under this scheme income of the assesses is calculated on presumptive basis rather than on actual basis. A person adopting the presumptive taxation scheme can declare income at prescribed rates. This scheme is most likely to benefit small traders, businessmen and professionals and relieve them from complying various requirements.
The presumptive taxation scheme of section 44AD can be adopted by following persons:
1) Resident Individual
2) Resident Hindu Undivided Family
3) Resident Partnership Firm (Excluding Limited Liability Partnership Firm)
In case of a person adopting the provisions of section 44AD, income is computed on presumptive basis at the rate of 8% of the turnover or gross receipts of the eligible business for the year or 6% of the turnover or gross receipts of the eligible business for the year only if turnover/gross receipt is received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date of filing of return under section 139(1)
However if a person is opting for the presumptive taxation scheme under section 44AD, the provisions of allowance/dis allowances as provided under the Income-tax Act will not be allowed and income computed at the presumptive rate of 6% or 8% will be the final.
If a person opts for presumptive taxation scheme then he is also require to follow the same scheme for next 5 years. If he failed to do so, then presumptive taxation scheme will not be available for him for next 5 years. [For example, an assessee claims to be taxed on presumptive basis under Section 44AD for AY 2017-18. For AY 2018-19 and 2019-20 and he offers income on basis of presumptive taxation scheme. However, for AY 2020-21, he did not opt for presumptive taxation Scheme. In this case, he will not be eligible to claim benefit of presumptive taxation scheme for next five AYs, i.e. from AY 2021-22 to 2025-26.]
Further, he is required to keep and maintain books of account and he is also liable for tax audit as per section 44AB from the AY in which he opts out from the presumptive taxation scheme. [If his total income exceeds maximum amount not chargeable to tax]
Person resident in India engaged in following professions can take advantage of presumptive taxation scheme of section 44ADA:-
3) Engineering or architectural
5) Technical consultancy
6) Interior decoration
7) Any other profession as notified by CBDT
If a person adopting the Presumptive Taxation Scheme under Section 44ADA, income will be computed on presumptive basis, i.e. @ 50% of the total gross receipts of the profession. Further A person who opts the presumptive taxation scheme is deemed to have claimed all deductions. Any further claim of deduction is not allowed after declaring profit @ 50%.
A person can declare income at lower rate (i.e. less than 50%), however, if he does so, 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 has to get his accounts audited as per section 44AB.
The presumptive taxation scheme of section 44AE can be opt by person who is engaged in the business of plying, hiring or leasing of goods carriages and who does not own more than 10 goods vehicles at any time during the year.
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. Part of the month would be considered as full month.
A person can declare his income at lower rate (i.e., at less than Rs. 1,000 per ton or Rs. 7,500 per goods vehicle per month). However, if he does so, then he is required to maintain the books of account as per the provisions of section 44AA and has to get his accounts audited under section 44AB.