[subscribe]
Presumptive Taxation

Presumptive Taxation Scheme under sections 44AD, 44ADA & 44AE

In this article, we will discuss about presumptive taxation scheme under sections 44AD, 44ADA & 44AE of the Income Tax Act,1961 What is Presumptive Taxation Scheme?   As per the Income Tax Act, 1961 a person engaged in business or profession is required to maintain regular books of account & also he has to get his accounts audited. To give relief to small taxpayers from this tedious work, the Income-tax Act has provided the presumptive taxation scheme under sections 44AD, 44ADA & 44AE. A person adopting the presumptive taxation scheme can declare income at a prescribed rate & is not required to maintenance his books of account & to get its accounts audited. Section 44AD: For Small Businesses. Section 44ADA: For professionals. Section 44AE: For GTA Businesses Presumptive Taxation Scheme under sections 44AD Applicability i.     It 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) ii.    Presumptive taxation scheme under section 44AD can be adopted by following persons: a) Resident Individual b) Resident Hindu Undivided Family (HUF) c) Resident Partnership Firm (not Limited Liability Partnership Firm) iii.    In other words, the scheme cannot be adopted by a non-resident & by any person other than an individual, a HUF or a partnership firm (not Limited Liability Partnership Firm. iv.    This scheme cannot be adopted by a person who has made any claim for deductions under section 10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant financial year Not Applicable to   i.     Business of plying, hiring or leasing of goods carriages referred to in section 44AE2.A person who is carrying on any agency business. ii.    A person who is earning income in the nature of commission or brokerage iii.   A person carrying on profession referred to in section 44AA (1) is not eligible for presumptive taxation scheme iv.   An insurance agent cannot adopt the presumptive taxation scheme. Insurance agents earn income by way of commission & hence, they cannot adopt the presumptive taxation scheme of section 44AD v.    A person whose total turnover or gross receipts for the year exceed Rs. 2 crores cannot adopt the presumptive taxation scheme. It can be opted by the eligible persons, if the total turnover or gross receipts from the business do not exceed Rs. 2 crores. Manner of computation   (i) In case of a eligible 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. (ii) In order to promote digital transactions and to encourage small unorganized business to accept digital payments, section 44AD is amended with effect from the assessment year 2017-18 to provide that income shall be computed at the rate of 6% instead of 8% 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 or through such other electronic mode as may be prescribed during the previous year or before the due date of filing of return under section 139(1) (iii)  However, a person may voluntarily disclose his business income at more than 8% (in case of cash transitions) or 6% (other than cash), as the case may be, of turnover or gross receipt. (iv)   Presumptive income computed as per the prescribed rate is the final income and no further expenses will be allowed or disallowed. i.e. In case of a person who is opting for the presumptive taxation scheme of section 44AD, the provisions of allowance/disallowances as provided for under the Income-tax Act will not apply and income computed at the presumptive rate of 6% or 8% will be the final taxable income of the business covered under the presumptive taxation scheme. Separate deduction on account of depreciation is also not available. (v)    No need to maintain books of account as prescribed under section 44AA   Payment of Advance tax   In respect of income from business covered under section 44AD: a.   Any person opting for presumptive taxation scheme is liable to pay whole amount of advance tax on or before 15thMarch of the previous year. b.   If he fails to pay the advance tax by 15th March of 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 31st day of March shall also be treated as advance tax paid during the financial year ending on that day.   Provisions applied if a person declares income at a lower rate, i.e., at less than 6% or 8%.  A person can declare income at lower rate (i.e., at less than 6% or 8%), if he does so, & 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. Consequences if a person opts out from the presumptive taxation scheme of section 44AD   1   If a person opts for presumptive taxation scheme, then he is also requiring to follow the same scheme for next 5 years. 2.  If he failed to do so, then presumptive taxation scheme will not be available for him for next 5 years. For example – An assessee opts presumptive taxation scheme under Section 44AD for AY 2021-22. However, for AY 2022-23, if 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 2023-24 to 2027-28. 3.   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

Share It . .
Read More »

Recent Post