The presumptive taxation scheme is designed to provide relief to small taxpayers by eliminating the requirement of maintenance of books of accounts and from getting the accounts audited under section 44AB.
What is section 44AD?
The provisions of section 44AD can be opted by an eligible assessee engaged in an eligible business and if the total turnover or gross receipts from the business does not exceed INR 2 crores during the financial year.
Who is an Eligible Assessee?
- Resident Individual
- Resident Hindu Undivided Family
- Resident Partnership Firm (With the exclusion of Limited Liability Partnership Firm as defined under LLP Act,2008)
What does the term Eligible Business mean?
- Assessee engaged in carrying on of any business except the business of Plying, hiring, or leasing goods carriages referred to in Section 44AE.
- Whose total turnover or gross receipts in the previous year does not exceed INR 2 crores.
Businesses not covered under the presumptive taxation scheme of section 44AD
- A person carrying on Profession referred to in Section 44AA (1).
- A person who has income in the nature of Commission or Brokerage.
- A person who is carrying on Agency business.
- Any firm or person that has made a claim for deductions under section 80HH to 80RRB or under section 10AA or 10A or 10B or 10BA during an assessment year.
Restriction imposed under section 44AD
If an assessee opts for presumptive taxation scheme and declares profits of any previous year in accordance with the provisions of this section then he is required to declare profit of next 5 assessment year succeeding such previous year in accordance with section 44AD(1).
In case the assessee fails to do so, the benefit of presumptive taxation will not be available for the next 5 assessment years succeeding such assessment year in which profit has not been declared in accordance with Section 44AD (1)
Example:
For example, an assessee claims to be taxed on presumptive basis under Section 44AD for AY 2022-23.
However, for AY 2023-24, he fails to declare profits as per the 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 2024-25 to 2028-29.
Payment of advance tax in respect of income declared under presumptive taxation scheme
Any person opting for the presumptive taxation scheme under section 44ADA is liable to pay 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 previous year, he shall be liable to pay interest as per section 234C.
Requirement of Maintenance of books of accounts and tax audit
| S.No | Gross Turnover | Profit % | Whether Taxable Income more than Basic Exemption Limit | 44AD Applicability | 44AB Applicability | Remarks |
| 1 | Rs. 1,75,00,000 | 9% | Yes | Yes | No | Assessee is not required to maintain books of accounts and get them audited. |
| 2 | Rs. 90,00,000 | 4% | Yes | No | Yes | a.The assessee opts for normal provisions since the profit is only 4%. b.Since the total income of the assessee is more than basic exemption, he is required to get his accounts audited u/s 44AB. c. The benefit of section 44AD shall not be available to the assessee for next 5 assessment years. |
| 3 | 25,00,000 | 4% | No | NA | No | a.Total Income is less than Basic Exemption Limit. Hence the assessee is not required to get the books of accounts audited. |
| 4 | 10,00,000 | -2% | No | NA | No | Since the assessee has incurred loss in the current year and his Total Income is less than Basic Exemption Limit, The assessee is not required to get the books of accounts audited. |
FAQ:
- What is the taxable income under presumptive taxation?
| Amount is received in the bank account and within the due date as under section 139 (1) | Amount is received in cash or received in bank but after the due date under section 139(1) |
| 6% of the turnover | 8% of the turnover |
- Can an assessee being a partnership firm is allowed to claim deduction in respect of Salary and Interest paid to Partners while computing Profit & Gains under Section 44AD?
For a partnership firm, any remuneration or interest paid to its partners is not allowed as deduction.
- When can an assessee declare profits at 6% of the turnover?
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)
- Can I claim deduction of expenses while computing presumptive income?
While computing income as per the provisions of section 44AD, separate deduction on account of expenses and depreciation is not available 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.
- Can I declare profit higher than the limit specified in the section i.e, 8%?
Yes, there is no restriction in declaring higher profit than the limit specified in the section 44AD.
Section 44ADA – Computing Profit and Gains of profession on presumptive basis.
What is Section 44ADA?
The provision of Section 44ADA can be opted by persons engaged in notified profession as referred to in Section 44AA (1) with gross receipts of less than INR 50 lakhs during the financial year.
Eligible Assessee:
- Resident Individual
- Resident HUF
- Resident Partnership Firm (With the exclusion of Limited Liability Partnership Firm as defined under LLP Act, 2008).
- Carrying on profession mentioned under Section 44AA(1).
- Gross receipts should not exceed 50 Lakh Rupees.
Computation of presumptive income:
A sum equal to 50% of the total gross receipts earned by the assessee shall be deemed to be taxable income or profit u/s 44ADA.
Example:
| Particulars | Normal provisions | Presumptive taxation scheme |
| Gross receipts | 75,00,000 | 70,00,000 |
| Less: expenses | 25,00,000 | 35,00,000 |
| Net profit | 50,00,000 | 35,00,000 |
In this case, the net profit under presumptive taxation scheme is less than the normal provisions of the act. Hence it is advantageous to the assessee to declare income under the presumptive taxation scheme.
FAQ
- Who are the eligible Professions under Section 44AA(1)?
- Legal
- Medical
- Engineering
- Architectural
- Accountancy
- Technical Consultancy
- Interior Decoration
- Any other profession notified by Board in the Official Gazette.
- Can a person declare his income from profession at a lower rate (i.e. less than 50%)?
A person can declare income at lower rate (i.e. less than 50%), however, if he does so, and his taxable 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
- Can we deduct expenses from the profit calculated as per Section 44AD?
A person who adopts the presumptive taxation scheme is deemed to have claimed all deduction of expenses. Any further claim of deduction is not allowed after declaring profit @ 50%
Author
Aravind D
