The presumptive taxation scheme is designed to encourage and provide relief to small taxpayers from compliance such as maintenance of books of account u/s 44AA and getting the accounts audited u/s 44AB. Under the said scheme, the taxpayer can declare a certain percentage of their turnover or receipts as their profit and pay taxes on that. In this blog, we will explain different presumptive schemes under 44AD, 44ADA, and 44ADE.
PRESUMPTIVE TAXATION UNDER SECTION 44AD:
Presumptive taxation under section 44AD of the Income Tax Act, 1961 is a simplified method of taxation that is available to certain eligible small taxpayers in India. Only Individual, partnership firms, and HUFs can avail this benefit.
Under this provision, eligible taxpayers engaged in certain specified businesses with a turnover of up to Rs. 2 crores can opt for presumptive taxation, whereby their taxable income is deemed to be a certain percentage of their total turnover. This means that they do not have to maintain detailed books of accounts and can pay tax on a presumptive basis. This limit of 2CR has been increased to 3CR w.e.f 1st April 2023.
In case, you are adopting the provisions of section 44AD, your income will not be computed in the normal manner but will be computed @ 8% of the turnover or gross receipts of the eligible business for the year. The income computed under this section is considered as the final taxable income of the business and no further expenses will be allowed. The presumptive income is calculated at a rate of 8% of the gross turnover or receipts of the eligible business. However, in the case of receipts other than cash, the rate is reduced to 6%.
It is important to note that taxpayers who opt for presumptive taxation under section 44AD are not required to maintain regular books of accounts or get their accounts audited. They are also not allowed to claim deductions for any expenses or losses incurred in their business. You can declare income at a lower rate (less than 8% or 6%), however, if you do so, and your income exceeds the basic exemption limit, then you will be required to maintain the books of accounts u/s 44AA and to get your accounts audited u/s 44AB.
If you adopt section 44AD you are required to follow the same for the next 5 years and in case, you fail to do so, then the presumptive taxation scheme will not be available to you for the next 5 years. In such a case, you must maintain books of accounts and get your accounts audited as per income tax laws.
Overall, presumptive taxation under section 44AD is a simple and easy way for eligible small taxpayers to calculate and pay their income tax in India.
PRESUMPTIVE TAXATION UNDER SECTION 44ADA:
Presumptive taxation under section 44ADA of the Income Tax Act, 1961 is a special provision that is available to certain professionals in India who is a person resident in India. Certain professionals as specified are Legal, Medical, Engineering or architectural, Accountancy, Technical consultancy, Interior decoration, and Any other profession as notified by CBDT.
Under this provision, eligible professionals with gross receipts up to Rs. 50 lacs can opt for presumptive taxation, whereby their taxable income is taken as a certain percentage of their total gross receipts. This means that they do not have to maintain detailed books of accounts and can pay tax on a presumptive basis. This limit of Rs. 50 lacs has been increased to Rs. 75 lacs from 1st April 2023.
The presumptive income is calculated at a rate of 50% of the gross receipts of the eligible professional. This means that the taxable income of the professional is assumed to be 50% of the gross receipts, and they do not have to maintain regular books of accounts or get their accounts audited.
However, it is important to note that professionals who opt for presumptive taxation under section 44ADA are not allowed to claim deductions for any expenses or losses incurred in their profession.
Overall, presumptive taxation under section 44ADA is a simple and easy way for eligible professionals to calculate and pay their income tax in India. It reduces the compliance burden on small professionals and provides them with a simpler method of taxation.
PRESUMPTIVE TAXATION UNDER SECTION 44ADE:
Section 44AEis a system of presumptive taxation that can be adopted by a 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.
For Heavy Goods Vehicles, 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.
The presumptive taxation scheme under 44AD, 44ADA, and 44ADE is supposed to provide relief to small taxpayers in India in terms of compliance requirements and also in terms of reduced taxation. Tax Vic provides consulting services for your tax planning and tax saving purpose. Try our services if you are looking for fast, approachable, and reasonable charges. Drop us an email at info@taxvic.com.
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