All About the Income Tax Presumptive Taxation Scheme

This article contains complete Information about the Presumptive Taxation Scheme. This article also covers Practical aspects of ITR-4, Income Tax Return which is required to be filed by Taxpayer opting for Presumptive Taxation Scheme.

Introduction

Sections 44AA of the Income Tax Act (1961) states that, a person engaged in business or profession needs to maintain regular books of accounts under certain circumstances as per specific conditions. To relieve small taxpayers from such compliance burden, the Income Tax Act has framed the presumptive taxation scheme u/s 44AD, 44ADA and 44AE.

A person adopting the presumptive taxation scheme can declare income at a prescribed rate. The Act has laid out presumptive taxation schemes (for ITR-4 users) as given below:

• Section 44AD: Computation of income on an estimated basis in the case of taxpayers (being a Resident Individual, Resident HUF, or Resident Partnership Firm (other than LLP) engaged in certain business subject to certain conditions.
• Section 44ADA: Computation of professional income on the estimated basis for Assessee being a resident in India and engaged in a profession referred to in section 44AA (1) subject to certain conditions.
• Section 44AE: Computation of income on an estimated basis in the case of taxpayers (being an Individual, HUF, Firm (other than LLP) or any other person being a resident or non-resident) engaged in the business of plying, leasing or hiring goods carriages, who owns not more than ten goods carriages at any time during the previous year.

Here are some of the FAQs related to the presumptive taxation scheme

Who is not eligible for the presumptive taxation scheme of 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 goods carriages referred to in sections 44AEA person carrying on any agency business
• A person earning income in the form of commission or brokerage (e.g., insurance agents)
• Any business whose total turnover or gross receipts exceeds Rs. 2 Crore
• Apart from the above, a person who is required to maintain books of accounts as referred to in Section 44AA (1) is not eligible for presumptive taxation scheme u/s 44AD.

The gross receipts for my business in the year are more than Rs. 2 Crore. Can I opt for presumptive taxation scheme of 44AD?

No. You can opt for the presumptive taxation scheme of section 44AD only if the total turnover or gross receipts from your business do not exceed the limit prescribed (i.e., Rs. 2 Crore).

I opted for the presumptive taxation scheme u/s 44AD for my last filed ITR. If I don’t opt for it any time in the next 5 years, what will happen?

If you opt for presumptive taxation scheme then you are required to follow the same scheme for the next 5 years. If you don’t, the presumptive taxation scheme won’t be available for you for next 5 years. For example, you claimed to be taxed on presumptive u/s 44AD for AY 2019-20, AY 2020-21 and AY 2021-22. However, for AY 2022-23, let’s say you did not opt for the presumptive taxation scheme. In this case, you will not be eligible to claim benefit of presumptive taxation scheme for next five AYs (AY 2023-24 to 2027-28).

Who can opt for presumptive taxation scheme of Section 44ADA?

The presumptive taxation scheme of Section 44ADA can be adopted by a resident in India carrying on specified profession whose gross receipts do not exceed Rs. 50 Lakh in a FY. Following professions are specified profession:

• Legal
• Medical
• Engineering or Architectural
• Accountancy
• Technical Consultancy
• Interior Decoration
• Any other Profession as notified by CBDT

I opted for presumptive income scheme of Section 44AD or 44ADA. Can I claim further deduction of expenses after declaring profit at applicable rate under respective sections of gross receipts?

No, a person who opted for the presumptive taxation scheme is deemed to have claimed all deduction of expenses. Any further claim of deduction is not allowed after declaring profit at specified rate. However, you can claim deductions under Chapter VI-A.

I opted for the presumptive income scheme of Section 44ADA. Do I have to pay Advance Tax in respect of income from profession covered in Section 44ADA?

Yes. Anyone opting for the presumptive taxation scheme u/s 44ADA is liable to pay 100% of Advance Tax on or before 15th March of the previous year. If you fail to pay the Advance Tax by 15th March of previous year, you will be liable to pay interest as per Section 234B and Section 234C. Any amount paid by way of Advance Tax on or before 31st March will also be treated as Advance Tax paid during the FY ending on that day.

I opted for presumptive taxation scheme of Section 44ADA. Do I need to maintain books of accounts as per Section 44AA?

If you are engaged in a specified profession as referred in Sections 44AA (1) and opt for presumptive taxation scheme of Section 44ADA (declare income @50% of the gross receipts), you are not required to maintain the books of accounts in respect of specified profession (i.e., the provision of Sections 44AA will not apply).

I opted for presumptive income scheme of Section 44AE. Do I need to maintain books of accounts as per Section 44AA?

Section 44AA of the Income Tax Act, 1961 has provisions relating to maintenance of books of account by persons engaged in Business / Profession. In case you opt for the presumptive taxation scheme of Section 44AE, the provisions of Section 44AA relating to maintenance of books of account will not apply.

I opted for the presumptive taxation scheme of Section 44AE. Do I have to pay Advance Tax in respect of income from business covered in Section 44AE?

Yes, You will be liable to pay Advance Tax. There is no concession with regard to the payment of Advance Tax if you opted for the presumptive taxation scheme of Section 44AE.

How do I compute income from a House Property which is partly self-occupied and partly let-out?

A house property may consist of two or more independent units, one of which is self-occupied and the remaining is used for any other purpose (i.e., let-out or used for own business). Income from such property will be computed in the following manner:

• Part / unit which is occupied by you for your residence throughout the year will be treated as an independent property and income from such a part / unit will be computed in the manner as described in the ITR-4 user manual in case of a self-occupied property.
• Part / unit which is let out will be treated as an independent property and income from such a part / unit will be computed in the manner as described in the ITR-4 user manual in case of let out property.

What is the tax treatment of unrealized rent that is subsequently realized?

Any subsequent recovery of unrealized rent will be deemed to be your income under the head Income from House Property in the year in which such rent is realized (whether or not you are the owner of that property in that year). It will be charged to tax after deducting a sum equal to 30% of unrealized rent.

Can my employer TAN be quoted in place of PAN?

No. PAN should never be quoted in the textbox where TAN is to be quoted, as the purposes for which PAN and TAN are allotted are different. TAN is a unique identification number that is allotted to parties who deduct or collect tax at source. PAN is a unique identification number issued to keep a linking of the transactions carried by a person like payment of tax, TDS / TCS credit, Return of Income, Return of Wealth, correspondence with the Income Tax Department or correspondence by the ITD, investments made by a person, a loan taken by a person, etc.

Taxpayers who have opted for the Presumptive Taxation Scheme are required to file ITR-4.

Here is all about filing ITR-4

Who is eligible to file ITR-4 for AY 2021-22?

ITR-4 can be filed by a Resident Individual / HUF / Firm (other than LLP) who has:

• Income not exceeding Rs. 50 Lakh during the FY
• Income from Business and Profession which is computed on a presumptive basis u/s 44AD, 44ADA or 44AE
• Income from Salary / Pension, One House Property, Agricultural Income (up to Rs. 5000/-)
• Other sources which include (excluding winning from Lottery and Income from Race Horses):
  • Interest from Savings Account
  • Interest from Deposit (Bank / Post Office / Cooperative Society)
  • Interest from Income Tax Refund
  • Family Pension
  • Interest received on enhanced compensation
  • Any other Interest Income (e.g., Interest Income from unsecured loan)

Who is not eligible to file ITR-4 for AY 2021-22?

ITR-4 cannot be filed by an individual /HUF / Firm (other than LLP) who:

• is a Residents Not Ordinarily Resident (RNOR), and Non-Resident Indian
• has total income exceeding Rs. 50 Lakh
• has agricultural income in excess of Rs. 5,000/-
• is a Director in a Company
• has income from more than One House Property;
• has income of the following nature:
• winnings from lottery;
• activity of owning and maintaining race horses;
• income taxable at special rates u/s 115BBDA or Section 115BBE;
• has held any unlisted equity shares at any time during the previous year
• has deferred income tax on ESOP received from employer being an eligible start-up
• is not covered under the eligibility conditions for ITR-4

What are the changes in ITR-4 as compared to previous years?

As compared to previous years, ITR-4 of AY 2021-22 has an option where, if you wish to opt for the new tax regime u/s 115BAC, you need to select Yes in the new form.

Please note that individual or HUF opting for new tax regime u/s 115BAC has to mandatorily file Form 10-IE before due date of filing of return u/s 139(1). After filing Form 10-IE, original return or revised return is required to be filed mandatorily to avail the benefit of new tax slab u/s 115BAC and Acknowledgement Number and Date of filing Form 10IE are mandatory fields in ITR-4.

What documents do I need to file ITR-4?

You will need to keep the below documents ready (as applicable) to file ITR-4:

• Form 16
• Form 26AS
• Form 16A
• Bank Statements
• Housing Loan Interest Certificates
• Receipts for Donation Made
• Rental Agreement
• Rent Receipts
• Investment premium payment receipts – LIC, ULIP etc.

What is the due date of Filing ITR-4 for AY 2023-24 (FY 2022-23)?

For AY 2021-22 (FY 2020-21) the due date of filing of ITR-4 is 31st July 2023.

ITR Utilities for ITR-4 have been released by the Income Tax Department.