Presumptive Taxation Scheme

In order to make tax filing simpler for small businessmen and professionals, the presumptive taxation scheme was introduced. Under this scheme, the taxpayer is not required to maintain books of accounts. Instead, the taxpayer’s income is calculated presumptively, provided the taxpayer’s turnover is below a stipulated limit.

Presumptive Taxation Scheme

As per the Income-tax Act, 1961, businessmen and professionals must maintain regular books of accounts. They must also get their accounts audited and file income tax returns (ITRs). However, in order to give relief to small taxpayers from the tedious job of maintaining regular books of account and getting them audited, income tax law has introduced a presumptive taxation scheme.

For small taxpayers the Income-tax Act has framed two presumptive taxation schemes as given below:

The presumptive taxation scheme of section 44AD
The presumptive taxation scheme of section 44ADA
The presumptive taxation scheme of section 44AE

Presumptive Taxation Scheme of Section 44AD

The presumptive taxation scheme of section 44AD is designed to give relief to small taxpayers engaged in any business (except the business of plying, hiring or leasing of goods carriages referred to in section 44AE).

Eligible Taxpayers
Resident Individuals
Resident Hindu Undivided Families
Resident Partnership Firms (excluding Limited Liability Partnership Firms).

Turnover Limit
 Total turnover or gross receipts should not exceed Rs. 2,00,00,000.

Non-Applicability

• The scheme cannot be adopted by a non-resident and by any person other than an individual, a HUF, or a partnership firm (not a Limited Liability Partnership Firm).
• This scheme cannot be adopted by a person who has made any claim towards deductions under section 10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant year.
• A person who is earning income in the nature of commission or brokerage (insurance agent) cannot adopt the presumptive taxation scheme of section 44AD
• A person who is engaged in any profession as prescribed under section 44AA(1) cannot adopt the presumptive taxation scheme of section 44AD

Businesses not covered under section 44AD

The scheme of section 44AD is designed to give relief to small taxpayers engaged in any business, except the following businesses:

• Business of plying, hiring, or leasing of goods carriages referred to in section 44AE
• A person who is carrying on any agency business
• A person who is earning income in the nature of commission or brokerage
• Apart from above discussed businesses, a person carrying on a profession as referred to in section 44AA (1)is not eligible for a presumptive taxation scheme.
• If the total turnover or gross receipt of the business exceeds Rs. 2,00,00,000 then the scheme of section 44AD cannot be adopted

Computation of taxable business income

Under section 44AD, taxable business income is computed at either 6% or 8% of the turnover or gross receipts, depending on certain conditions. However, as of the assessment year 2017-18, if the turnover or gross receipts are received through digital transactions such as account payee cheques, bank drafts, or electronic clearing systems, the income rate is reduced to 6%. This amendment aims to incentivize small businesses to embrace digital payment methods, streamlining their tax obligations. Once income is computed using the prescribed rate, it becomes the final taxable income, with no further deductions or expenses allowed or disallowed

 

Maintenance of books of account

If a person adopts the provisions of section 44AD and declares income @ 6% or 8% of the turnover, then he is not required to maintain the books of account as provided for under section 44AA in respect of business covered under the scheme of section 44AD

Payment of advance tax

Any person opting for the presumptive taxation scheme under section 44AD is liable to pay the whole amount of advance tax on or before 15th March of the previous year. If he fails to pay the advance tax by 15th March of the previous year, he shall be liable to pay interest as per section 234C

Note: Any amount paid by way of advance tax on or before the 31st day of March shall also be treated as advance tax paid during the financial year ending on that day.

Consequences if a person opts out from the presumptive taxation scheme of section 44AD

If a person opts for a presumptive taxation scheme then he is also required to follow the same scheme for the next 5 years.  If he failed to do so, then a presumptive taxation scheme will not be available for him for the next 5 years. 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.

Presumptive Taxation Scheme of Section 44ADA

The presumptive taxation scheme of section 44ADA is designed to give relief to small taxpayers engaged in a specified profession.

Eligible taxpayer

A person resident in India engaged in the following professions can take advantage of the presumptive taxation scheme of section 44ADA

• Legal
• Medical
• Engineering or architectural
• Accountancy
• Technical consultancy
• Interior decoration
• Any other profession as notified by CBDT

The Finance Act, 2021 has amended provisions of section 44ADA to define eligible assessee. With effect from AssessmentYear 2021-22, the benefit of section 44ADA is eligible only for the following assessees:

Individual
Partnership firm other than a Limited Liability Partnership as defined under clause (n) of sub-section (1) of section 2 of Limited Liability Partnership Act, 2008.

Computation of taxable income

Under section 44ADA, income is computed presumptively at 50% of total gross receipts for professionals. However, individuals can declare income higher than 50%. Once the profit is declared at 50%, all deductions are deemed to be claimed, and no further deductions are allowed. Depreciation deduction is not available, but the written down value of assets is calculated as if depreciation under section 32 has been claimed and allowed.

Payment of advance tax

Any person opting for the presumptive taxation scheme under section 44ADA is liable to pay the whole amount of advance tax on or before 15th March of the previous year. If he fails to pay the advance tax by 15th March of the previous year, he shall be liable to pay interest as per section 234C

Maintenance of books of accounts

If a person opts for the provisions of section 44ADA and declares income @50% of the gross receipts, then he is not required to maintain the books of account in respect of the specified profession

Note:

A person can declare income at a 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.

Presumptive Taxation Scheme of Section 44AE

The scheme of section 44AE is designed to give relief to small taxpayers engaged in the business of plying, hiring, or leasing goods carriages

Eligible taxpayer

The provisions of section 44AE are applicable to every person:

• Individual
• HUF
• Firm
• company

Eligible business

The presumptive taxation scheme of section 44AE can be adopted by a person who is engaged in the business of plying, hiring, or leasing goods carriages and who does not own more than 10 goods vehicles at any time during the year

Eligibility Criteria

The presumptive taxation scheme of section 44AE can be adopted by a person who is engaged in the business of plying, hiring, or leasing goods carriages and who does not own more than 10 goods vehicles at any time during the year.

The important criterion of the scheme is the restriction on owning not more than 10 goods vehicles at any time during the year. Thus, if a person owns more than 10 goods vehicles at any time during the year, then he cannot take advantage of this scheme.

Computation of taxable income

In the case of a person who is willing to opt for the scheme of section 44AE, income will be computed on an estimated basis.

For Heavy Goods Vehicle, income will be computed at the rate of Rs. 1,000 per ton of gross vehicle weight for every month or part of a month during which the heavy goods vehicle is owned by the taxpayer.

In the case of vehicles other than heavy goods vehicles, income will be computed at the rate of 7,500 for every month or part of a month during which the carriage of the goods is owned by the taxpayer. Part of the month would be considered a full month.

Note :

If the actual income is higher than the presumptive rate, i.e., higher than Rs. 1,000/Rs. 7,500, then such higher income can be declared.

“Heavy Goods Vehicle” means any goods carriage having a gross vehicle weight exceeding 12,000 kilograms.

Conclusion:

The presumptive taxation schemes provide a simplified tax filing process for small businessmen and professionals, eliminating the need for extensive bookkeeping and audits. By understanding the eligibility criteria and benefits of each scheme, taxpayers can make informed decisions to optimize their tax obligations while focusing on growing their businesses.

 

 

 

 

Presumptive Taxation Scheme

In order to make tax filing simpler for small businessmen and professionals, the presumptive taxation scheme was introduced. Under this scheme, the taxpayer is not required to maintain books of accounts. Instead, the taxpayer’s income is calculated presumptively, provided the taxpayer’s turnover is below a stipulated limit.

Presumptive Taxation Scheme

As per the Income-tax Act, 1961, businessmen and professionals must maintain regular books of accounts. They must also get their accounts audited and file income tax returns (ITRs). However, in order to give relief to small taxpayers from the tedious job of maintaining regular books of account and getting them audited, income tax law has introduced a presumptive taxation scheme.

For small taxpayers the Income-tax Act has framed two presumptive taxation schemes as given below:

The presumptive taxation scheme of section 44AD
The presumptive taxation scheme of section 44ADA
The presumptive taxation scheme of section 44AE

Presumptive Taxation Scheme of Section 44AD

The presumptive taxation scheme of section 44AD is designed to give relief to small taxpayers engaged in any business (except the business of plying, hiring or leasing of goods carriages referred to in section 44AE).

Eligible Taxpayers
Resident Individuals
Resident Hindu Undivided Families
Resident Partnership Firms (excluding Limited Liability Partnership Firms).

Turnover Limit
 Total turnover or gross receipts should not exceed Rs. 2,00,00,000.

Non-Applicability

• The scheme cannot be adopted by a non-resident and by any person other than an individual, a HUF, or a partnership firm (not a Limited Liability Partnership Firm).
• This scheme cannot be adopted by a person who has made any claim towards deductions under section 10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant year.
• A person who is earning income in the nature of commission or brokerage (insurance agent) cannot adopt the presumptive taxation scheme of section 44AD
• A person who is engaged in any profession as prescribed under section 44AA(1) cannot adopt the presumptive taxation scheme of section 44AD

Businesses not covered under section 44AD

The scheme of section 44AD is designed to give relief to small taxpayers engaged in any business, except the following businesses:

• Business of plying, hiring, or leasing of goods carriages referred to in section 44AE
• A person who is carrying on any agency business
• A person who is earning income in the nature of commission or brokerage
• Apart from above discussed businesses, a person carrying on a profession as referred to in section 44AA (1)is not eligible for a presumptive taxation scheme.
• If the total turnover or gross receipt of the business exceeds Rs. 2,00,00,000 then the scheme of section 44AD cannot be adopted

Computation of taxable business income

Under section 44AD, taxable business income is computed at either 6% or 8% of the turnover or gross receipts, depending on certain conditions. However, as of the assessment year 2017-18, if the turnover or gross receipts are received through digital transactions such as account payee cheques, bank drafts, or electronic clearing systems, the income rate is reduced to 6%. This amendment aims to incentivize small businesses to embrace digital payment methods, streamlining their tax obligations. Once income is computed using the prescribed rate, it becomes the final taxable income, with no further deductions or expenses allowed or disallowed

 

Maintenance of books of account

If a person adopts the provisions of section 44AD and declares income @ 6% or 8% of the turnover, then he is not required to maintain the books of account as provided for under section 44AA in respect of business covered under the scheme of section 44AD

Payment of advance tax

Any person opting for the presumptive taxation scheme under section 44AD is liable to pay the whole amount of advance tax on or before 15th March of the previous year. If he fails to pay the advance tax by 15th March of the previous year, he shall be liable to pay interest as per section 234C

Note: Any amount paid by way of advance tax on or before the 31st day of March shall also be treated as advance tax paid during the financial year ending on that day.

Consequences if a person opts out from the presumptive taxation scheme of section 44AD

If a person opts for a presumptive taxation scheme then he is also required to follow the same scheme for the next 5 years.  If he failed to do so, then a presumptive taxation scheme will not be available for him for the next 5 years. 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.

Presumptive Taxation Scheme of Section 44ADA

The presumptive taxation scheme of section 44ADA is designed to give relief to small taxpayers engaged in a specified profession.

Eligible taxpayer

A person resident in India engaged in the following professions can take advantage of the presumptive taxation scheme of section 44ADA

• Legal
• Medical
• Engineering or architectural
• Accountancy
• Technical consultancy
• Interior decoration
• Any other profession as notified by CBDT

The Finance Act, 2021 has amended provisions of section 44ADA to define eligible assessee. With effect from AssessmentYear 2021-22, the benefit of section 44ADA is eligible only for the following assessees:

Individual
Partnership firm other than a Limited Liability Partnership as defined under clause (n) of sub-section (1) of section 2 of Limited Liability Partnership Act, 2008.

Computation of taxable income

Under section 44ADA, income is computed presumptively at 50% of total gross receipts for professionals. However, individuals can declare income higher than 50%. Once the profit is declared at 50%, all deductions are deemed to be claimed, and no further deductions are allowed. Depreciation deduction is not available, but the written down value of assets is calculated as if depreciation under section 32 has been claimed and allowed.

Payment of advance tax

Any person opting for the presumptive taxation scheme under section 44ADA is liable to pay the whole amount of advance tax on or before 15th March of the previous year. If he fails to pay the advance tax by 15th March of the previous year, he shall be liable to pay interest as per section 234C

Maintenance of books of accounts

If a person opts for the provisions of section 44ADA and declares income @50% of the gross receipts, then he is not required to maintain the books of account in respect of the specified profession

Note:

A person can declare income at a 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.

Presumptive Taxation Scheme of Section 44AE

The scheme of section 44AE is designed to give relief to small taxpayers engaged in the business of plying, hiring, or leasing goods carriages

Eligible taxpayer

The provisions of section 44AE are applicable to every person:

• Individual
• HUF
• Firm
• company

Eligible business

The presumptive taxation scheme of section 44AE can be adopted by a person who is engaged in the business of plying, hiring, or leasing goods carriages and who does not own more than 10 goods vehicles at any time during the year

Eligibility Criteria

The presumptive taxation scheme of section 44AE can be adopted by a person who is engaged in the business of plying, hiring, or leasing goods carriages and who does not own more than 10 goods vehicles at any time during the year.

The important criterion of the scheme is the restriction on owning not more than 10 goods vehicles at any time during the year. Thus, if a person owns more than 10 goods vehicles at any time during the year, then he cannot take advantage of this scheme.

Computation of taxable income

In the case of a person who is willing to opt for the scheme of section 44AE, income will be computed on an estimated basis.

For Heavy Goods Vehicle, income will be computed at the rate of Rs. 1,000 per ton of gross vehicle weight for every month or part of a month during which the heavy goods vehicle is owned by the taxpayer.

In the case of vehicles other than heavy goods vehicles, income will be computed at the rate of 7,500 for every month or part of a month during which the carriage of the goods is owned by the taxpayer. Part of the month would be considered a full month.

Note :

If the actual income is higher than the presumptive rate, i.e., higher than Rs. 1,000/Rs. 7,500, then such higher income can be declared.

“Heavy Goods Vehicle” means any goods carriage having a gross vehicle weight exceeding 12,000 kilograms.

Conclusion:

The presumptive taxation schemes provide a simplified tax filing process for small businessmen and professionals, eliminating the need for extensive bookkeeping and audits. By understanding the eligibility criteria and benefits of each scheme, taxpayers can make informed decisions to optimize their tax obligations while focusing on growing their businesses.

 

 

 

 

Presumptive Taxation Scheme

In order to make tax filing simpler for small businessmen and professionals, the presumptive taxation scheme was introduced. Under this scheme, the taxpayer is not required to maintain books of accounts. Instead, the taxpayer’s income is calculated presumptively, provided the taxpayer’s turnover is below a stipulated limit.

Presumptive Taxation Scheme

As per the Income-tax Act, 1961, businessmen and professionals must maintain regular books of accounts. They must also get their accounts audited and file income tax returns (ITRs). However, in order to give relief to small taxpayers from the tedious job of maintaining regular books of account and getting them audited, income tax law has introduced a presumptive taxation scheme.

For small taxpayers the Income-tax Act has framed two presumptive taxation schemes as given below:

The presumptive taxation scheme of section 44AD
The presumptive taxation scheme of section 44ADA
The presumptive taxation scheme of section 44AE

Presumptive Taxation Scheme of Section 44AD

The presumptive taxation scheme of section 44AD is designed to give relief to small taxpayers engaged in any business (except the business of plying, hiring or leasing of goods carriages referred to in section 44AE).

Eligible Taxpayers
Resident Individuals
Resident Hindu Undivided Families
Resident Partnership Firms (excluding Limited Liability Partnership Firms).

Turnover Limit
 Total turnover or gross receipts should not exceed Rs. 2,00,00,000.

Non-Applicability

• The scheme cannot be adopted by a non-resident and by any person other than an individual, a HUF, or a partnership firm (not a Limited Liability Partnership Firm).
• This scheme cannot be adopted by a person who has made any claim towards deductions under section 10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant year.
• A person who is earning income in the nature of commission or brokerage (insurance agent) cannot adopt the presumptive taxation scheme of section 44AD
• A person who is engaged in any profession as prescribed under section 44AA(1) cannot adopt the presumptive taxation scheme of section 44AD

Businesses not covered under section 44AD

The scheme of section 44AD is designed to give relief to small taxpayers engaged in any business, except the following businesses:

• Business of plying, hiring, or leasing of goods carriages referred to in section 44AE
• A person who is carrying on any agency business
• A person who is earning income in the nature of commission or brokerage
• Apart from above discussed businesses, a person carrying on a profession as referred to in section 44AA (1)is not eligible for a presumptive taxation scheme.
• If the total turnover or gross receipt of the business exceeds Rs. 2,00,00,000 then the scheme of section 44AD cannot be adopted

Computation of taxable business income

Under section 44AD, taxable business income is computed at either 6% or 8% of the turnover or gross receipts, depending on certain conditions. However, as of the assessment year 2017-18, if the turnover or gross receipts are received through digital transactions such as account payee cheques, bank drafts, or electronic clearing systems, the income rate is reduced to 6%. This amendment aims to incentivize small businesses to embrace digital payment methods, streamlining their tax obligations. Once income is computed using the prescribed rate, it becomes the final taxable income, with no further deductions or expenses allowed or disallowed

 

Maintenance of books of account

If a person adopts the provisions of section 44AD and declares income @ 6% or 8% of the turnover, then he is not required to maintain the books of account as provided for under section 44AA in respect of business covered under the scheme of section 44AD

Payment of advance tax

Any person opting for the presumptive taxation scheme under section 44AD is liable to pay the whole amount of advance tax on or before 15th March of the previous year. If he fails to pay the advance tax by 15th March of the previous year, he shall be liable to pay interest as per section 234C

Note: Any amount paid by way of advance tax on or before the 31st day of March shall also be treated as advance tax paid during the financial year ending on that day.

Consequences if a person opts out from the presumptive taxation scheme of section 44AD

If a person opts for a presumptive taxation scheme then he is also required to follow the same scheme for the next 5 years.  If he failed to do so, then a presumptive taxation scheme will not be available for him for the next 5 years. 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.

Presumptive Taxation Scheme of Section 44ADA

The presumptive taxation scheme of section 44ADA is designed to give relief to small taxpayers engaged in a specified profession.

Eligible taxpayer

A person resident in India engaged in the following professions can take advantage of the presumptive taxation scheme of section 44ADA

• Legal
• Medical
• Engineering or architectural
• Accountancy
• Technical consultancy
• Interior decoration
• Any other profession as notified by CBDT

The Finance Act, 2021 has amended provisions of section 44ADA to define eligible assessee. With effect from AssessmentYear 2021-22, the benefit of section 44ADA is eligible only for the following assessees:

Individual
Partnership firm other than a Limited Liability Partnership as defined under clause (n) of sub-section (1) of section 2 of Limited Liability Partnership Act, 2008.

Computation of taxable income

Under section 44ADA, income is computed presumptively at 50% of total gross receipts for professionals. However, individuals can declare income higher than 50%. Once the profit is declared at 50%, all deductions are deemed to be claimed, and no further deductions are allowed. Depreciation deduction is not available, but the written down value of assets is calculated as if depreciation under section 32 has been claimed and allowed.

Payment of advance tax

Any person opting for the presumptive taxation scheme under section 44ADA is liable to pay the whole amount of advance tax on or before 15th March of the previous year. If he fails to pay the advance tax by 15th March of the previous year, he shall be liable to pay interest as per section 234C

Maintenance of books of accounts

If a person opts for the provisions of section 44ADA and declares income @50% of the gross receipts, then he is not required to maintain the books of account in respect of the specified profession

Note:

A person can declare income at a 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.

Presumptive Taxation Scheme of Section 44AE

The scheme of section 44AE is designed to give relief to small taxpayers engaged in the business of plying, hiring, or leasing goods carriages

Eligible taxpayer

The provisions of section 44AE are applicable to every person:

• Individual
• HUF
• Firm
• company

Eligible business

The presumptive taxation scheme of section 44AE can be adopted by a person who is engaged in the business of plying, hiring, or leasing goods carriages and who does not own more than 10 goods vehicles at any time during the year

Eligibility Criteria

The presumptive taxation scheme of section 44AE can be adopted by a person who is engaged in the business of plying, hiring, or leasing goods carriages and who does not own more than 10 goods vehicles at any time during the year.

The important criterion of the scheme is the restriction on owning not more than 10 goods vehicles at any time during the year. Thus, if a person owns more than 10 goods vehicles at any time during the year, then he cannot take advantage of this scheme.

Computation of taxable income

In the case of a person who is willing to opt for the scheme of section 44AE, income will be computed on an estimated basis.

For Heavy Goods Vehicle, income will be computed at the rate of Rs. 1,000 per ton of gross vehicle weight for every month or part of a month during which the heavy goods vehicle is owned by the taxpayer.

In the case of vehicles other than heavy goods vehicles, income will be computed at the rate of 7,500 for every month or part of a month during which the carriage of the goods is owned by the taxpayer. Part of the month would be considered a full month.

Note :

If the actual income is higher than the presumptive rate, i.e., higher than Rs. 1,000/Rs. 7,500, then such higher income can be declared.

“Heavy Goods Vehicle” means any goods carriage having a gross vehicle weight exceeding 12,000 kilograms.

Conclusion:

The presumptive taxation schemes provide a simplified tax filing process for small businessmen and professionals, eliminating the need for extensive bookkeeping and audits. By understanding the eligibility criteria and benefits of each scheme, taxpayers can make informed decisions to optimize their tax obligations while focusing on growing their businesses.

 

 

 

 

Presumptive Taxation Scheme

In order to make tax filing simpler for small businessmen and professionals, the presumptive taxation scheme was introduced. Under this scheme, the taxpayer is not required to maintain books of accounts. Instead, the taxpayer’s income is calculated presumptively, provided the taxpayer’s turnover is below a stipulated limit.

Presumptive Taxation Scheme

As per the Income-tax Act, 1961, businessmen and professionals must maintain regular books of accounts. They must also get their accounts audited and file income tax returns (ITRs). However, in order to give relief to small taxpayers from the tedious job of maintaining regular books of account and getting them audited, income tax law has introduced a presumptive taxation scheme.

For small taxpayers the Income-tax Act has framed two presumptive taxation schemes as given below:

The presumptive taxation scheme of section 44AD
The presumptive taxation scheme of section 44ADA
The presumptive taxation scheme of section 44AE

Presumptive Taxation Scheme of Section 44AD

The presumptive taxation scheme of section 44AD is designed to give relief to small taxpayers engaged in any business (except the business of plying, hiring or leasing of goods carriages referred to in section 44AE).

Eligible Taxpayers
Resident Individuals
Resident Hindu Undivided Families
Resident Partnership Firms (excluding Limited Liability Partnership Firms).

Turnover Limit
 Total turnover or gross receipts should not exceed Rs. 2,00,00,000.

Non-Applicability

• The scheme cannot be adopted by a non-resident and by any person other than an individual, a HUF, or a partnership firm (not a Limited Liability Partnership Firm).
• This scheme cannot be adopted by a person who has made any claim towards deductions under section 10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant year.
• A person who is earning income in the nature of commission or brokerage (insurance agent) cannot adopt the presumptive taxation scheme of section 44AD
• A person who is engaged in any profession as prescribed under section 44AA(1) cannot adopt the presumptive taxation scheme of section 44AD

Businesses not covered under section 44AD

The scheme of section 44AD is designed to give relief to small taxpayers engaged in any business, except the following businesses:

• Business of plying, hiring, or leasing of goods carriages referred to in section 44AE
• A person who is carrying on any agency business
• A person who is earning income in the nature of commission or brokerage
• Apart from above discussed businesses, a person carrying on a profession as referred to in section 44AA (1)is not eligible for a presumptive taxation scheme.
• If the total turnover or gross receipt of the business exceeds Rs. 2,00,00,000 then the scheme of section 44AD cannot be adopted

Computation of taxable business income

Under section 44AD, taxable business income is computed at either 6% or 8% of the turnover or gross receipts, depending on certain conditions. However, as of the assessment year 2017-18, if the turnover or gross receipts are received through digital transactions such as account payee cheques, bank drafts, or electronic clearing systems, the income rate is reduced to 6%. This amendment aims to incentivize small businesses to embrace digital payment methods, streamlining their tax obligations. Once income is computed using the prescribed rate, it becomes the final taxable income, with no further deductions or expenses allowed or disallowed

 

Maintenance of books of account

If a person adopts the provisions of section 44AD and declares income @ 6% or 8% of the turnover, then he is not required to maintain the books of account as provided for under section 44AA in respect of business covered under the scheme of section 44AD

Payment of advance tax

Any person opting for the presumptive taxation scheme under section 44AD is liable to pay the whole amount of advance tax on or before 15th March of the previous year. If he fails to pay the advance tax by 15th March of the previous year, he shall be liable to pay interest as per section 234C

Note: Any amount paid by way of advance tax on or before the 31st day of March shall also be treated as advance tax paid during the financial year ending on that day.

Consequences if a person opts out from the presumptive taxation scheme of section 44AD

If a person opts for a presumptive taxation scheme then he is also required to follow the same scheme for the next 5 years.  If he failed to do so, then a presumptive taxation scheme will not be available for him for the next 5 years. 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.

Presumptive Taxation Scheme of Section 44ADA

The presumptive taxation scheme of section 44ADA is designed to give relief to small taxpayers engaged in a specified profession.

Eligible taxpayer

A person resident in India engaged in the following professions can take advantage of the presumptive taxation scheme of section 44ADA

• Legal
• Medical
• Engineering or architectural
• Accountancy
• Technical consultancy
• Interior decoration
• Any other profession as notified by CBDT

The Finance Act, 2021 has amended provisions of section 44ADA to define eligible assessee. With effect from AssessmentYear 2021-22, the benefit of section 44ADA is eligible only for the following assessees:

Individual
Partnership firm other than a Limited Liability Partnership as defined under clause (n) of sub-section (1) of section 2 of Limited Liability Partnership Act, 2008.

Computation of taxable income

Under section 44ADA, income is computed presumptively at 50% of total gross receipts for professionals. However, individuals can declare income higher than 50%. Once the profit is declared at 50%, all deductions are deemed to be claimed, and no further deductions are allowed. Depreciation deduction is not available, but the written down value of assets is calculated as if depreciation under section 32 has been claimed and allowed.

Payment of advance tax

Any person opting for the presumptive taxation scheme under section 44ADA is liable to pay the whole amount of advance tax on or before 15th March of the previous year. If he fails to pay the advance tax by 15th March of the previous year, he shall be liable to pay interest as per section 234C

Maintenance of books of accounts

If a person opts for the provisions of section 44ADA and declares income @50% of the gross receipts, then he is not required to maintain the books of account in respect of the specified profession

Note:

A person can declare income at a 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.

Presumptive Taxation Scheme of Section 44AE

The scheme of section 44AE is designed to give relief to small taxpayers engaged in the business of plying, hiring, or leasing goods carriages

Eligible taxpayer

The provisions of section 44AE are applicable to every person:

• Individual
• HUF
• Firm
• company

Eligible business

The presumptive taxation scheme of section 44AE can be adopted by a person who is engaged in the business of plying, hiring, or leasing goods carriages and who does not own more than 10 goods vehicles at any time during the year

Eligibility Criteria

The presumptive taxation scheme of section 44AE can be adopted by a person who is engaged in the business of plying, hiring, or leasing goods carriages and who does not own more than 10 goods vehicles at any time during the year.

The important criterion of the scheme is the restriction on owning not more than 10 goods vehicles at any time during the year. Thus, if a person owns more than 10 goods vehicles at any time during the year, then he cannot take advantage of this scheme.

Computation of taxable income

In the case of a person who is willing to opt for the scheme of section 44AE, income will be computed on an estimated basis.

For Heavy Goods Vehicle, income will be computed at the rate of Rs. 1,000 per ton of gross vehicle weight for every month or part of a month during which the heavy goods vehicle is owned by the taxpayer.

In the case of vehicles other than heavy goods vehicles, income will be computed at the rate of 7,500 for every month or part of a month during which the carriage of the goods is owned by the taxpayer. Part of the month would be considered a full month.

Note :

If the actual income is higher than the presumptive rate, i.e., higher than Rs. 1,000/Rs. 7,500, then such higher income can be declared.

“Heavy Goods Vehicle” means any goods carriage having a gross vehicle weight exceeding 12,000 kilograms.

Conclusion:

The presumptive taxation schemes provide a simplified tax filing process for small businessmen and professionals, eliminating the need for extensive bookkeeping and audits. By understanding the eligibility criteria and benefits of each scheme, taxpayers can make informed decisions to optimize their tax obligations while focusing on growing their businesses.

 

 

 

 

Presumptive Taxation Scheme

In order to make tax filing simpler for small businessmen and professionals, the presumptive taxation scheme was introduced. Under this scheme, the taxpayer is not required to maintain books of accounts. Instead, the taxpayer’s income is calculated presumptively, provided the taxpayer’s turnover is below a stipulated limit.

Presumptive Taxation Scheme

As per the Income-tax Act, 1961, businessmen and professionals must maintain regular books of accounts. They must also get their accounts audited and file income tax returns (ITRs). However, in order to give relief to small taxpayers from the tedious job of maintaining regular books of account and getting them audited, income tax law has introduced a presumptive taxation scheme.

For small taxpayers the Income-tax Act has framed two presumptive taxation schemes as given below:

The presumptive taxation scheme of section 44AD
The presumptive taxation scheme of section 44ADA
The presumptive taxation scheme of section 44AE

Presumptive Taxation Scheme of Section 44AD

The presumptive taxation scheme of section 44AD is designed to give relief to small taxpayers engaged in any business (except the business of plying, hiring or leasing of goods carriages referred to in section 44AE).

Eligible Taxpayers
Resident Individuals
Resident Hindu Undivided Families
Resident Partnership Firms (excluding Limited Liability Partnership Firms).

Turnover Limit
 Total turnover or gross receipts should not exceed Rs. 2,00,00,000.

Non-Applicability

• The scheme cannot be adopted by a non-resident and by any person other than an individual, a HUF, or a partnership firm (not a Limited Liability Partnership Firm).
• This scheme cannot be adopted by a person who has made any claim towards deductions under section 10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant year.
• A person who is earning income in the nature of commission or brokerage (insurance agent) cannot adopt the presumptive taxation scheme of section 44AD
• A person who is engaged in any profession as prescribed under section 44AA(1) cannot adopt the presumptive taxation scheme of section 44AD

Businesses not covered under section 44AD

The scheme of section 44AD is designed to give relief to small taxpayers engaged in any business, except the following businesses:

• Business of plying, hiring, or leasing of goods carriages referred to in section 44AE
• A person who is carrying on any agency business
• A person who is earning income in the nature of commission or brokerage
• Apart from above discussed businesses, a person carrying on a profession as referred to in section 44AA (1)is not eligible for a presumptive taxation scheme.
• If the total turnover or gross receipt of the business exceeds Rs. 2,00,00,000 then the scheme of section 44AD cannot be adopted

Computation of taxable business income

Under section 44AD, taxable business income is computed at either 6% or 8% of the turnover or gross receipts, depending on certain conditions. However, as of the assessment year 2017-18, if the turnover or gross receipts are received through digital transactions such as account payee cheques, bank drafts, or electronic clearing systems, the income rate is reduced to 6%. This amendment aims to incentivize small businesses to embrace digital payment methods, streamlining their tax obligations. Once income is computed using the prescribed rate, it becomes the final taxable income, with no further deductions or expenses allowed or disallowed

 

Maintenance of books of account

If a person adopts the provisions of section 44AD and declares income @ 6% or 8% of the turnover, then he is not required to maintain the books of account as provided for under section 44AA in respect of business covered under the scheme of section 44AD

Payment of advance tax

Any person opting for the presumptive taxation scheme under section 44AD is liable to pay the whole amount of advance tax on or before 15th March of the previous year. If he fails to pay the advance tax by 15th March of the previous year, he shall be liable to pay interest as per section 234C

Note: Any amount paid by way of advance tax on or before the 31st day of March shall also be treated as advance tax paid during the financial year ending on that day.

Consequences if a person opts out from the presumptive taxation scheme of section 44AD

If a person opts for a presumptive taxation scheme then he is also required to follow the same scheme for the next 5 years.  If he failed to do so, then a presumptive taxation scheme will not be available for him for the next 5 years. 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.

Presumptive Taxation Scheme of Section 44ADA

The presumptive taxation scheme of section 44ADA is designed to give relief to small taxpayers engaged in a specified profession.

Eligible taxpayer

A person resident in India engaged in the following professions can take advantage of the presumptive taxation scheme of section 44ADA

• Legal
• Medical
• Engineering or architectural
• Accountancy
• Technical consultancy
• Interior decoration
• Any other profession as notified by CBDT

The Finance Act, 2021 has amended provisions of section 44ADA to define eligible assessee. With effect from AssessmentYear 2021-22, the benefit of section 44ADA is eligible only for the following assessees:

Individual
Partnership firm other than a Limited Liability Partnership as defined under clause (n) of sub-section (1) of section 2 of Limited Liability Partnership Act, 2008.

Computation of taxable income

Under section 44ADA, income is computed presumptively at 50% of total gross receipts for professionals. However, individuals can declare income higher than 50%. Once the profit is declared at 50%, all deductions are deemed to be claimed, and no further deductions are allowed. Depreciation deduction is not available, but the written down value of assets is calculated as if depreciation under section 32 has been claimed and allowed.

Payment of advance tax

Any person opting for the presumptive taxation scheme under section 44ADA is liable to pay the whole amount of advance tax on or before 15th March of the previous year. If he fails to pay the advance tax by 15th March of the previous year, he shall be liable to pay interest as per section 234C

Maintenance of books of accounts

If a person opts for the provisions of section 44ADA and declares income @50% of the gross receipts, then he is not required to maintain the books of account in respect of the specified profession

Note:

A person can declare income at a 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.

Presumptive Taxation Scheme of Section 44AE

The scheme of section 44AE is designed to give relief to small taxpayers engaged in the business of plying, hiring, or leasing goods carriages

Eligible taxpayer

The provisions of section 44AE are applicable to every person:

• Individual
• HUF
• Firm
• company

Eligible business

The presumptive taxation scheme of section 44AE can be adopted by a person who is engaged in the business of plying, hiring, or leasing goods carriages and who does not own more than 10 goods vehicles at any time during the year

Eligibility Criteria

The presumptive taxation scheme of section 44AE can be adopted by a person who is engaged in the business of plying, hiring, or leasing goods carriages and who does not own more than 10 goods vehicles at any time during the year.

The important criterion of the scheme is the restriction on owning not more than 10 goods vehicles at any time during the year. Thus, if a person owns more than 10 goods vehicles at any time during the year, then he cannot take advantage of this scheme.

Computation of taxable income

In the case of a person who is willing to opt for the scheme of section 44AE, income will be computed on an estimated basis.

For Heavy Goods Vehicle, income will be computed at the rate of Rs. 1,000 per ton of gross vehicle weight for every month or part of a month during which the heavy goods vehicle is owned by the taxpayer.

In the case of vehicles other than heavy goods vehicles, income will be computed at the rate of 7,500 for every month or part of a month during which the carriage of the goods is owned by the taxpayer. Part of the month would be considered a full month.

Note :

If the actual income is higher than the presumptive rate, i.e., higher than Rs. 1,000/Rs. 7,500, then such higher income can be declared.

“Heavy Goods Vehicle” means any goods carriage having a gross vehicle weight exceeding 12,000 kilograms.

Conclusion:

The presumptive taxation schemes provide a simplified tax filing process for small businessmen and professionals, eliminating the need for extensive bookkeeping and audits. By understanding the eligibility criteria and benefits of each scheme, taxpayers can make informed decisions to optimize their tax obligations while focusing on growing their businesses.

 

 

 

 

Presumptive Taxation Scheme

In order to make tax filing simpler for small businessmen and professionals, the presumptive taxation scheme was introduced. Under this scheme, the taxpayer is not required to maintain books of accounts. Instead, the taxpayer’s income is calculated presumptively, provided the taxpayer’s turnover is below a stipulated limit.

Presumptive Taxation Scheme

As per the Income-tax Act, 1961, businessmen and professionals must maintain regular books of accounts. They must also get their accounts audited and file income tax returns (ITRs). However, in order to give relief to small taxpayers from the tedious job of maintaining regular books of account and getting them audited, income tax law has introduced a presumptive taxation scheme.

For small taxpayers the Income-tax Act has framed two presumptive taxation schemes as given below:

The presumptive taxation scheme of section 44AD
The presumptive taxation scheme of section 44ADA
The presumptive taxation scheme of section 44AE

Presumptive Taxation Scheme of Section 44AD

The presumptive taxation scheme of section 44AD is designed to give relief to small taxpayers engaged in any business (except the business of plying, hiring or leasing of goods carriages referred to in section 44AE).

Eligible Taxpayers
Resident Individuals
Resident Hindu Undivided Families
Resident Partnership Firms (excluding Limited Liability Partnership Firms).

Turnover Limit
 Total turnover or gross receipts should not exceed Rs. 2,00,00,000.

Non-Applicability

• The scheme cannot be adopted by a non-resident and by any person other than an individual, a HUF, or a partnership firm (not a Limited Liability Partnership Firm).
• This scheme cannot be adopted by a person who has made any claim towards deductions under section 10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant year.
• A person who is earning income in the nature of commission or brokerage (insurance agent) cannot adopt the presumptive taxation scheme of section 44AD
• A person who is engaged in any profession as prescribed under section 44AA(1) cannot adopt the presumptive taxation scheme of section 44AD

Businesses not covered under section 44AD

The scheme of section 44AD is designed to give relief to small taxpayers engaged in any business, except the following businesses:

• Business of plying, hiring, or leasing of goods carriages referred to in section 44AE
• A person who is carrying on any agency business
• A person who is earning income in the nature of commission or brokerage
• Apart from above discussed businesses, a person carrying on a profession as referred to in section 44AA (1)is not eligible for a presumptive taxation scheme.
• If the total turnover or gross receipt of the business exceeds Rs. 2,00,00,000 then the scheme of section 44AD cannot be adopted

Computation of taxable business income

Under section 44AD, taxable business income is computed at either 6% or 8% of the turnover or gross receipts, depending on certain conditions. However, as of the assessment year 2017-18, if the turnover or gross receipts are received through digital transactions such as account payee cheques, bank drafts, or electronic clearing systems, the income rate is reduced to 6%. This amendment aims to incentivize small businesses to embrace digital payment methods, streamlining their tax obligations. Once income is computed using the prescribed rate, it becomes the final taxable income, with no further deductions or expenses allowed or disallowed

 

Maintenance of books of account

If a person adopts the provisions of section 44AD and declares income @ 6% or 8% of the turnover, then he is not required to maintain the books of account as provided for under section 44AA in respect of business covered under the scheme of section 44AD

Payment of advance tax

Any person opting for the presumptive taxation scheme under section 44AD is liable to pay the whole amount of advance tax on or before 15th March of the previous year. If he fails to pay the advance tax by 15th March of the previous year, he shall be liable to pay interest as per section 234C

Note: Any amount paid by way of advance tax on or before the 31st day of March shall also be treated as advance tax paid during the financial year ending on that day.

Consequences if a person opts out from the presumptive taxation scheme of section 44AD

If a person opts for a presumptive taxation scheme then he is also required to follow the same scheme for the next 5 years.  If he failed to do so, then a presumptive taxation scheme will not be available for him for the next 5 years. 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.

Presumptive Taxation Scheme of Section 44ADA

The presumptive taxation scheme of section 44ADA is designed to give relief to small taxpayers engaged in a specified profession.

Eligible taxpayer

A person resident in India engaged in the following professions can take advantage of the presumptive taxation scheme of section 44ADA

• Legal
• Medical
• Engineering or architectural
• Accountancy
• Technical consultancy
• Interior decoration
• Any other profession as notified by CBDT

The Finance Act, 2021 has amended provisions of section 44ADA to define eligible assessee. With effect from AssessmentYear 2021-22, the benefit of section 44ADA is eligible only for the following assessees:

Individual
Partnership firm other than a Limited Liability Partnership as defined under clause (n) of sub-section (1) of section 2 of Limited Liability Partnership Act, 2008.

Computation of taxable income

Under section 44ADA, income is computed presumptively at 50% of total gross receipts for professionals. However, individuals can declare income higher than 50%. Once the profit is declared at 50%, all deductions are deemed to be claimed, and no further deductions are allowed. Depreciation deduction is not available, but the written down value of assets is calculated as if depreciation under section 32 has been claimed and allowed.

Payment of advance tax

Any person opting for the presumptive taxation scheme under section 44ADA is liable to pay the whole amount of advance tax on or before 15th March of the previous year. If he fails to pay the advance tax by 15th March of the previous year, he shall be liable to pay interest as per section 234C

Maintenance of books of accounts

If a person opts for the provisions of section 44ADA and declares income @50% of the gross receipts, then he is not required to maintain the books of account in respect of the specified profession

Note:

A person can declare income at a 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.

Presumptive Taxation Scheme of Section 44AE

The scheme of section 44AE is designed to give relief to small taxpayers engaged in the business of plying, hiring, or leasing goods carriages

Eligible taxpayer

The provisions of section 44AE are applicable to every person:

• Individual
• HUF
• Firm
• company

Eligible business

The presumptive taxation scheme of section 44AE can be adopted by a person who is engaged in the business of plying, hiring, or leasing goods carriages and who does not own more than 10 goods vehicles at any time during the year

Eligibility Criteria

The presumptive taxation scheme of section 44AE can be adopted by a person who is engaged in the business of plying, hiring, or leasing goods carriages and who does not own more than 10 goods vehicles at any time during the year.

The important criterion of the scheme is the restriction on owning not more than 10 goods vehicles at any time during the year. Thus, if a person owns more than 10 goods vehicles at any time during the year, then he cannot take advantage of this scheme.

Computation of taxable income

In the case of a person who is willing to opt for the scheme of section 44AE, income will be computed on an estimated basis.

For Heavy Goods Vehicle, income will be computed at the rate of Rs. 1,000 per ton of gross vehicle weight for every month or part of a month during which the heavy goods vehicle is owned by the taxpayer.

In the case of vehicles other than heavy goods vehicles, income will be computed at the rate of 7,500 for every month or part of a month during which the carriage of the goods is owned by the taxpayer. Part of the month would be considered a full month.

Note :

If the actual income is higher than the presumptive rate, i.e., higher than Rs. 1,000/Rs. 7,500, then such higher income can be declared.

“Heavy Goods Vehicle” means any goods carriage having a gross vehicle weight exceeding 12,000 kilograms.

Conclusion:

The presumptive taxation schemes provide a simplified tax filing process for small businessmen and professionals, eliminating the need for extensive bookkeeping and audits. By understanding the eligibility criteria and benefits of each scheme, taxpayers can make informed decisions to optimize their tax obligations while focusing on growing their businesses.

 

 

 

 

Presumptive Taxation Scheme

In order to make tax filing simpler for small businessmen and professionals, the presumptive taxation scheme was introduced. Under this scheme, the taxpayer is not required to maintain books of accounts. Instead, the taxpayer’s income is calculated presumptively, provided the taxpayer’s turnover is below a stipulated limit.

Presumptive Taxation Scheme

As per the Income-tax Act, 1961, businessmen and professionals must maintain regular books of accounts. They must also get their accounts audited and file income tax returns (ITRs). However, in order to give relief to small taxpayers from the tedious job of maintaining regular books of account and getting them audited, income tax law has introduced a presumptive taxation scheme.

For small taxpayers the Income-tax Act has framed two presumptive taxation schemes as given below:

The presumptive taxation scheme of section 44AD
The presumptive taxation scheme of section 44ADA
The presumptive taxation scheme of section 44AE

Presumptive Taxation Scheme of Section 44AD

The presumptive taxation scheme of section 44AD is designed to give relief to small taxpayers engaged in any business (except the business of plying, hiring or leasing of goods carriages referred to in section 44AE).

Eligible Taxpayers
Resident Individuals
Resident Hindu Undivided Families
Resident Partnership Firms (excluding Limited Liability Partnership Firms).

Turnover Limit
 Total turnover or gross receipts should not exceed Rs. 2,00,00,000.

Non-Applicability

• The scheme cannot be adopted by a non-resident and by any person other than an individual, a HUF, or a partnership firm (not a Limited Liability Partnership Firm).
• This scheme cannot be adopted by a person who has made any claim towards deductions under section 10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant year.
• A person who is earning income in the nature of commission or brokerage (insurance agent) cannot adopt the presumptive taxation scheme of section 44AD
• A person who is engaged in any profession as prescribed under section 44AA(1) cannot adopt the presumptive taxation scheme of section 44AD

Businesses not covered under section 44AD

The scheme of section 44AD is designed to give relief to small taxpayers engaged in any business, except the following businesses:

• Business of plying, hiring, or leasing of goods carriages referred to in section 44AE
• A person who is carrying on any agency business
• A person who is earning income in the nature of commission or brokerage
• Apart from above discussed businesses, a person carrying on a profession as referred to in section 44AA (1)is not eligible for a presumptive taxation scheme.
• If the total turnover or gross receipt of the business exceeds Rs. 2,00,00,000 then the scheme of section 44AD cannot be adopted

Computation of taxable business income

Under section 44AD, taxable business income is computed at either 6% or 8% of the turnover or gross receipts, depending on certain conditions. However, as of the assessment year 2017-18, if the turnover or gross receipts are received through digital transactions such as account payee cheques, bank drafts, or electronic clearing systems, the income rate is reduced to 6%. This amendment aims to incentivize small businesses to embrace digital payment methods, streamlining their tax obligations. Once income is computed using the prescribed rate, it becomes the final taxable income, with no further deductions or expenses allowed or disallowed

 

Maintenance of books of account

If a person adopts the provisions of section 44AD and declares income @ 6% or 8% of the turnover, then he is not required to maintain the books of account as provided for under section 44AA in respect of business covered under the scheme of section 44AD

Payment of advance tax

Any person opting for the presumptive taxation scheme under section 44AD is liable to pay the whole amount of advance tax on or before 15th March of the previous year. If he fails to pay the advance tax by 15th March of the previous year, he shall be liable to pay interest as per section 234C

Note: Any amount paid by way of advance tax on or before the 31st day of March shall also be treated as advance tax paid during the financial year ending on that day.

Consequences if a person opts out from the presumptive taxation scheme of section 44AD

If a person opts for a presumptive taxation scheme then he is also required to follow the same scheme for the next 5 years.  If he failed to do so, then a presumptive taxation scheme will not be available for him for the next 5 years. 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.

Presumptive Taxation Scheme of Section 44ADA

The presumptive taxation scheme of section 44ADA is designed to give relief to small taxpayers engaged in a specified profession.

Eligible taxpayer

A person resident in India engaged in the following professions can take advantage of the presumptive taxation scheme of section 44ADA

• Legal
• Medical
• Engineering or architectural
• Accountancy
• Technical consultancy
• Interior decoration
• Any other profession as notified by CBDT

The Finance Act, 2021 has amended provisions of section 44ADA to define eligible assessee. With effect from AssessmentYear 2021-22, the benefit of section 44ADA is eligible only for the following assessees:

Individual
Partnership firm other than a Limited Liability Partnership as defined under clause (n) of sub-section (1) of section 2 of Limited Liability Partnership Act, 2008.

Computation of taxable income

Under section 44ADA, income is computed presumptively at 50% of total gross receipts for professionals. However, individuals can declare income higher than 50%. Once the profit is declared at 50%, all deductions are deemed to be claimed, and no further deductions are allowed. Depreciation deduction is not available, but the written down value of assets is calculated as if depreciation under section 32 has been claimed and allowed.

Payment of advance tax

Any person opting for the presumptive taxation scheme under section 44ADA is liable to pay the whole amount of advance tax on or before 15th March of the previous year. If he fails to pay the advance tax by 15th March of the previous year, he shall be liable to pay interest as per section 234C

Maintenance of books of accounts

If a person opts for the provisions of section 44ADA and declares income @50% of the gross receipts, then he is not required to maintain the books of account in respect of the specified profession

Note:

A person can declare income at a 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.

Presumptive Taxation Scheme of Section 44AE

The scheme of section 44AE is designed to give relief to small taxpayers engaged in the business of plying, hiring, or leasing goods carriages

Eligible taxpayer

The provisions of section 44AE are applicable to every person:

• Individual
• HUF
• Firm
• company

Eligible business

The presumptive taxation scheme of section 44AE can be adopted by a person who is engaged in the business of plying, hiring, or leasing goods carriages and who does not own more than 10 goods vehicles at any time during the year

Eligibility Criteria

The presumptive taxation scheme of section 44AE can be adopted by a person who is engaged in the business of plying, hiring, or leasing goods carriages and who does not own more than 10 goods vehicles at any time during the year.

The important criterion of the scheme is the restriction on owning not more than 10 goods vehicles at any time during the year. Thus, if a person owns more than 10 goods vehicles at any time during the year, then he cannot take advantage of this scheme.

Computation of taxable income

In the case of a person who is willing to opt for the scheme of section 44AE, income will be computed on an estimated basis.

For Heavy Goods Vehicle, income will be computed at the rate of Rs. 1,000 per ton of gross vehicle weight for every month or part of a month during which the heavy goods vehicle is owned by the taxpayer.

In the case of vehicles other than heavy goods vehicles, income will be computed at the rate of 7,500 for every month or part of a month during which the carriage of the goods is owned by the taxpayer. Part of the month would be considered a full month.

Note :

If the actual income is higher than the presumptive rate, i.e., higher than Rs. 1,000/Rs. 7,500, then such higher income can be declared.

“Heavy Goods Vehicle” means any goods carriage having a gross vehicle weight exceeding 12,000 kilograms.

Conclusion:

The presumptive taxation schemes provide a simplified tax filing process for small businessmen and professionals, eliminating the need for extensive bookkeeping and audits. By understanding the eligibility criteria and benefits of each scheme, taxpayers can make informed decisions to optimize their tax obligations while focusing on growing their businesses.

 

 

 

 

Presumptive Taxation Scheme

In order to make tax filing simpler for small businessmen and professionals, the presumptive taxation scheme was introduced. Under this scheme, the taxpayer is not required to maintain books of accounts. Instead, the taxpayer’s income is calculated presumptively, provided the taxpayer’s turnover is below a stipulated limit.

Presumptive Taxation Scheme

As per the Income-tax Act, 1961, businessmen and professionals must maintain regular books of accounts. They must also get their accounts audited and file income tax returns (ITRs). However, in order to give relief to small taxpayers from the tedious job of maintaining regular books of account and getting them audited, income tax law has introduced a presumptive taxation scheme.

For small taxpayers the Income-tax Act has framed two presumptive taxation schemes as given below:

The presumptive taxation scheme of section 44AD
The presumptive taxation scheme of section 44ADA
The presumptive taxation scheme of section 44AE

Presumptive Taxation Scheme of Section 44AD

The presumptive taxation scheme of section 44AD is designed to give relief to small taxpayers engaged in any business (except the business of plying, hiring or leasing of goods carriages referred to in section 44AE).

Eligible Taxpayers
Resident Individuals
Resident Hindu Undivided Families
Resident Partnership Firms (excluding Limited Liability Partnership Firms).

Turnover Limit
 Total turnover or gross receipts should not exceed Rs. 2,00,00,000.

Non-Applicability

• The scheme cannot be adopted by a non-resident and by any person other than an individual, a HUF, or a partnership firm (not a Limited Liability Partnership Firm).
• This scheme cannot be adopted by a person who has made any claim towards deductions under section 10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant year.
• A person who is earning income in the nature of commission or brokerage (insurance agent) cannot adopt the presumptive taxation scheme of section 44AD
• A person who is engaged in any profession as prescribed under section 44AA(1) cannot adopt the presumptive taxation scheme of section 44AD

Businesses not covered under section 44AD

The scheme of section 44AD is designed to give relief to small taxpayers engaged in any business, except the following businesses:

• Business of plying, hiring, or leasing of goods carriages referred to in section 44AE
• A person who is carrying on any agency business
• A person who is earning income in the nature of commission or brokerage
• Apart from above discussed businesses, a person carrying on a profession as referred to in section 44AA (1)is not eligible for a presumptive taxation scheme.
• If the total turnover or gross receipt of the business exceeds Rs. 2,00,00,000 then the scheme of section 44AD cannot be adopted

Computation of taxable business income

Under section 44AD, taxable business income is computed at either 6% or 8% of the turnover or gross receipts, depending on certain conditions. However, as of the assessment year 2017-18, if the turnover or gross receipts are received through digital transactions such as account payee cheques, bank drafts, or electronic clearing systems, the income rate is reduced to 6%. This amendment aims to incentivize small businesses to embrace digital payment methods, streamlining their tax obligations. Once income is computed using the prescribed rate, it becomes the final taxable income, with no further deductions or expenses allowed or disallowed

 

Maintenance of books of account

If a person adopts the provisions of section 44AD and declares income @ 6% or 8% of the turnover, then he is not required to maintain the books of account as provided for under section 44AA in respect of business covered under the scheme of section 44AD

Payment of advance tax

Any person opting for the presumptive taxation scheme under section 44AD is liable to pay the whole amount of advance tax on or before 15th March of the previous year. If he fails to pay the advance tax by 15th March of the previous year, he shall be liable to pay interest as per section 234C

Note: Any amount paid by way of advance tax on or before the 31st day of March shall also be treated as advance tax paid during the financial year ending on that day.

Consequences if a person opts out from the presumptive taxation scheme of section 44AD

If a person opts for a presumptive taxation scheme then he is also required to follow the same scheme for the next 5 years.  If he failed to do so, then a presumptive taxation scheme will not be available for him for the next 5 years. 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.

Presumptive Taxation Scheme of Section 44ADA

The presumptive taxation scheme of section 44ADA is designed to give relief to small taxpayers engaged in a specified profession.

Eligible taxpayer

A person resident in India engaged in the following professions can take advantage of the presumptive taxation scheme of section 44ADA

• Legal
• Medical
• Engineering or architectural
• Accountancy
• Technical consultancy
• Interior decoration
• Any other profession as notified by CBDT

The Finance Act, 2021 has amended provisions of section 44ADA to define eligible assessee. With effect from AssessmentYear 2021-22, the benefit of section 44ADA is eligible only for the following assessees:

Individual
Partnership firm other than a Limited Liability Partnership as defined under clause (n) of sub-section (1) of section 2 of Limited Liability Partnership Act, 2008.

Computation of taxable income

Under section 44ADA, income is computed presumptively at 50% of total gross receipts for professionals. However, individuals can declare income higher than 50%. Once the profit is declared at 50%, all deductions are deemed to be claimed, and no further deductions are allowed. Depreciation deduction is not available, but the written down value of assets is calculated as if depreciation under section 32 has been claimed and allowed.

Payment of advance tax

Any person opting for the presumptive taxation scheme under section 44ADA is liable to pay the whole amount of advance tax on or before 15th March of the previous year. If he fails to pay the advance tax by 15th March of the previous year, he shall be liable to pay interest as per section 234C

Maintenance of books of accounts

If a person opts for the provisions of section 44ADA and declares income @50% of the gross receipts, then he is not required to maintain the books of account in respect of the specified profession

Note:

A person can declare income at a 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.

Presumptive Taxation Scheme of Section 44AE

The scheme of section 44AE is designed to give relief to small taxpayers engaged in the business of plying, hiring, or leasing goods carriages

Eligible taxpayer

The provisions of section 44AE are applicable to every person:

• Individual
• HUF
• Firm
• company

Eligible business

The presumptive taxation scheme of section 44AE can be adopted by a person who is engaged in the business of plying, hiring, or leasing goods carriages and who does not own more than 10 goods vehicles at any time during the year

Eligibility Criteria

The presumptive taxation scheme of section 44AE can be adopted by a person who is engaged in the business of plying, hiring, or leasing goods carriages and who does not own more than 10 goods vehicles at any time during the year.

The important criterion of the scheme is the restriction on owning not more than 10 goods vehicles at any time during the year. Thus, if a person owns more than 10 goods vehicles at any time during the year, then he cannot take advantage of this scheme.

Computation of taxable income

In the case of a person who is willing to opt for the scheme of section 44AE, income will be computed on an estimated basis.

For Heavy Goods Vehicle, income will be computed at the rate of Rs. 1,000 per ton of gross vehicle weight for every month or part of a month during which the heavy goods vehicle is owned by the taxpayer.

In the case of vehicles other than heavy goods vehicles, income will be computed at the rate of 7,500 for every month or part of a month during which the carriage of the goods is owned by the taxpayer. Part of the month would be considered a full month.

Note :

If the actual income is higher than the presumptive rate, i.e., higher than Rs. 1,000/Rs. 7,500, then such higher income can be declared.

“Heavy Goods Vehicle” means any goods carriage having a gross vehicle weight exceeding 12,000 kilograms.

Conclusion:

The presumptive taxation schemes provide a simplified tax filing process for small businessmen and professionals, eliminating the need for extensive bookkeeping and audits. By understanding the eligibility criteria and benefits of each scheme, taxpayers can make informed decisions to optimize their tax obligations while focusing on growing their businesses.