FAQs on Tax on Presumptive Taxation Scheme

• What is the meaning of presumptive taxation scheme

As persections 44AAof the Income-tax Act, 1961, a person engaged in business is required to maintain regular books of account under certain circumstances. To give relief to small taxpayers from this tedious work, the Income-tax Act has framed the presumptive taxation scheme undersections 44AD,sections 44ADAandsections 44AE.
A person adopting the presumptive taxation scheme can declare income at a prescribed rate and, in turn, is relieved from tedious job of maintenance of books of account.

• Who is eligible to take advantage of the presumptive taxation scheme of section 44AD

The presumptive taxation scheme ofsection 44ADcan be adopted by following persons :
1) Resident Individual
2) Resident Hindu Undivided Family
3) Resident Partnership Firm (not Limited Liability Partnership Firm)
In other words, the scheme cannot be adopted by a non-resident and by any person other than an individual, a HUF or a partnership firm (not Limited Liability Partnership Firm).
Further, this Scheme cannot be adopted by a person who has made any claim towards deductions undersection 10A/10AA/10B/10BAor undersections 80HHto80RRBin the relevant year.

• Which businesses are not eligible for presumptive taxation scheme

The scheme of section 44ADis 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 insections 44AE.
• A person who is carrying on any agency business.
• A person who is earning income in the nature of commission or brokerage
• Any business whose total turnover or gross receipts exceeds two crore rupees.

Apart from above discussed businesses, a person carrying on profession as referred to insection 44AA(1)is not eligible for presumptive taxation scheme undersection 44AD.

• Can an insurance agent adopt the presumptive taxation scheme of section 44AD

A person who is earning income in the nature of commission or brokerage cannot adopt the presumptive taxation scheme ofsection 44AD. Insurance agents earn income by way of commission and, hence, they cannot adopt the presumptive taxation scheme ofsection 44AD.

• Can a person engaged in a profession as prescribed under section 44AA(1) adopt the presumptive taxation scheme of section 44AD

A person who is engaged in any profession as prescribed undersection 44AA(1)cannot adopt the presumptive taxation scheme ofsection 44AD.
However, he can opt for presumptive taxation scheme undersection 44ADAand declare 50% of gross receipts of profession as his presumptive income. Presumptive Scheme undersection 44ADA is applicable only for resident assessee whose total gross receipts of profession do not exceed fifty lakh rupees.

• Can a person whose total turnover or gross receipts for the year exceed Rs. 2,00,00,000 adopt the presumptive taxation scheme of section 44AD

The presumptive taxation scheme ofsection 44ADcan be opted by the eligible persons if the total turnover or gross receipts from the business do not exceed the limit prescribed undersection 44AB (i.e.,Rs. 2,00,00,000). In other words, if the total turnover or gross receipt of the business exceeds Rs. 2,00,00,000 then the scheme ofsection 44ADcannot be adopted.

• What is the manner of computation of taxable business income under the normal provisions of the Income-tax Law, i.e., in case of a person not adopting the presumptive taxation scheme of section 44AD

Generally, as per the Income-tax Law, the taxable business income of every person is computed as follows :

For the purpose of computing taxable business income in the above manner, the taxpayers have to maintain books of account of the business and income will be computed on the basis of the information revealed in the books of account.

• What is the manner of computation of taxable business income in case of a person adopting the presumptive taxation scheme of section 44AD

In case of a person adopting the provisions ofsection 44AD, income will be computed on presumptive basis,i.e.,@ 8% of the turnover or gross receipts of the eligible business for the year.
Income shall be calculated at rate of 6% in respect of total turnover or gross receipts which is received by an account payee cheque or draft or use of electronic clearing system.
In other words, in case of a person adopting the provisions ofsection 44AD, income will not be computed in normal manner as discussed in previous FAQ (i.e.,TurnoverlessExpense) but will be computed @ 8%/6% of the turnover.
Income at higher rate,i.e.,higher than 8% can be declared if the actual income is higher than 8%.

• As per the presumptive taxation scheme of section 44AD, income of a taxpayer will be computed @ 8%/6% of the turnover or gross receipt and from such income can the taxpayer claim any further deductions

Under the normal provisions of the Income-tax Law, taxable business income will be computed after allowing deduction in respect of expenses which are deductible as per the Income-tax Act and after disallowing expenses which are not deductible as per the Income-tax Act.
In case of a person who is opting for the presumptive taxation scheme ofsection 44AD, the provisions of allowance/dis allowances as provided under the Income-tax Law will not apply and income computed at the presumptive rate of 8%/6% will be the final taxable income of the business covered under the presumptive taxation scheme and no further expenses will be allowed or disallowed.
While computing income as per the provisions ofsection 44AD, separate deduction on account of depreciation is not available, however, the written down value of any asset used in such business shall be calculated as if depreciation as persection 32 is claimed and has been actually allowed.

• If a person adopts the presumptive taxation scheme of section 44AD, then is he required to maintain books of account as per section 44AA

Section 44AAdeals with provisions relating to maintenance of books of account by a person engaged in business/profession. Thus, a person engaged in business/profession has to maintain books of account of his business/profession according to the provisions ofsection 44AA.
In case of a person engaged in a business and opting for the presumptive taxation scheme ofsection 44AD, the provisions ofsection 44AArelating to maintenance of books of account will not apply. In other words, if a person adopts the provisions ofsection 44ADand declares income @ 8%/6% of the turnover, then he is not required to maintain the books of account as provided undersection 44AAin respect of business covered under the presumptive taxation scheme ofsection 44AD.

• If a person adopts the presumptive taxation scheme of section 44AD, then is he liable to pay advance tax in respect of income from business covered under section 44AD

Any person opting for the presumptive taxation scheme undersection 44ADis 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 persection 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.

• What provisions will apply if a person who is eligible for the presumptive taxation scheme of section 44AD declares his income at a lower rate (i.e. less than 8%)

A person can declare income at lower rate (i.e., less than 8%/6%), 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 ofsection 44AAand has to get his accounts audited as persection 44AB.

• If a person adopts the presumptive taxation scheme but he opts out from the scheme in any of the subsequent five years, then what are the consequences

If a person opts for presumptive taxation scheme then he is also require to follow the same scheme for next 5 years. If he failed to do so, then presumptive taxation scheme will not be available for him for next 5 years. [For example, an assessee claims to be taxed on presumptive basis underSection 44ADfor AY 2017-18. For AY 2018-19 and 2019-20 also he offers income on basis of presumptive taxation scheme. However, for AY 2020-21, 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 2021-22 to 2025-26.]
He is required to keep and maintain books of account and he is also liable for tax audit as persection 44ABfrom the AY in which he opts out from the presumptive taxation scheme. [If his total income exceeds maximum amount not chargeable to tax]

• Who is eligible to take advantage of the presumptive taxation scheme of section 44ADA

The presumptive taxation scheme ofsections 44ADA can be adopted by a person resident in India, carrying on specified profession whose gross receipts do not exceed fifty lakh rupees in a financial year. Following professions are specified profession:
1) Legal
2) Medical
3) Engineering or architectural
4) Accountancy
5) Technical consultancy
6) Interior decoration
7) Any other profession as notified by CBDT

• What is the manner of computation of taxable income in case of a person adopting the presumptive taxation scheme of section 44ADA

In case of a person adopting the provisions ofsections 44ADA, income will be computed on presumptive basis, i.e. @ 50% of the total gross receipts of the profession. However such person can declare income higher than 50%.
In other words, in case of a person adopting the provisions ofsections 44ADA, income will not be computed in normal manner but will be computed @50% of the gross receipts.

• Can a person who adopts the presumptive taxation scheme of section 44ADA claim any further deduction of expenses after declaring profit @ 50% of gross receipts

No, 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%.

• If a person adopts the presumptive taxation scheme of section 44ADA, then is he liable to pay advance tax in respect of income from profession covered under section 44ADA

Any person opting for the presumptive taxation scheme undersections 44ADAis 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 persections 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.

• If a person adopts the presumptive taxation scheme of section 44ADA, then he is required to maintain books of account as per section 44AA

In case of a person engaged in a specified profession as referred insections 44AA(1)and opts for presumptive taxation scheme ofsections 44ADA, the provision ofsections 44AArelating to maintenance of books of account will not apply. In other words, if a person opt for the provisions ofsections 44ADAand declares income @50% of the gross receipts, then he is not required to maintain the books of account in respect of specified profession.

• What provision will apply if a person opt for the presumptive taxation scheme of section 44ADA and declares his income from profession at 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 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 ofsections 44AAand has to get his accounts audited as persections 44AB.

• For whom the presumptive taxation scheme of section 44AE is designed

The scheme ofsections 44AE is available to the person who owns not more than ten goods carriages at any time during the previous year and who is engaged in the business of plying, hiring or leasing such goods carriages./p>

• Who is eligible to take advantage of the presumptive taxation scheme of section 44AE and which business is eligible for the presumptive taxation scheme of section 44AE

The provisions ofsections 44AEare applicable to every person (i.e., an individual, HUF, firm, company, etc.).
The presumptive taxation scheme ofsections 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.

• Can a person who owns more than 10 goods vehicles adopt the presumptive taxation scheme of section 44AE

The presumptive taxation scheme of sections 44AEcan 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 of owning of 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.

• As per the presumptive taxation scheme of section 44AE, income of a taxpayer will be computed at the rate of Rs. 7,500 per goods vehicle per month and in such a case can the taxpayer claim any further deductions from the presumptive income decla

Under the normal provisions of the Income-tax Act, taxable business income will be computed after allowing deduction in respect of expenses which are deductible as per the Income-tax Act,1961 and after disallowing expenses which are not deductible as per the Income-tax Act, 1961.
In case of a person who is opting for the presumptive taxation scheme ofsections 44AE, the provisions of allowance/dis allowances as provided under the Income-tax Act,1961 will not apply and income computed at the presumptive rate :

1. a) Rs. 7,500 per month or part of the month for each goods carriage, during which the goods vehicle is owned by the assessee in the previous year. Part of the month would be considered as full month (not applicable from A.Y 2019-20)
   If the actual income is higher than the presumptive rate, then such higher income can be declared if the taxpayer wants to declare as such.
   b) Rs. 7,500 per month or part of the month for each goods carriage (other than heavy goods vehicle) / Rs. 1000 per ton of gross vehicle weight per month or part of the month in case of heavy goods vehicle, during which the goods vehicle is owned by the assessee, in the previous year or actual amount earned whichever is higher. Part of the month would be considered as full month. (Applicable from A.Y 2019-20)

Income computed at the presumptive rate as specified above will be the final income and no further deduction shall be allowed under sections 30 to 38 including depreciation and unabsorbed depreciation.
Heavy goods vehicles means any goods carriage vehicle whose gross vehicle weight exceeds 12000 kilograms.
However, in case of a taxpayer, being a partnership firm, opting for the presumptive taxation scheme, from the income computed at the rate of :
a) Rs. 7,500 per month or part of the month for each goods carriage, during which the goods vehicle is owner by the assessee during the previous year. Part of the month would be considered as full month (not applicable from A.Y 2019-20)
If the actual income is higher than the presumptive rate, then such higher income can be declared if the taxpayer wants to declare as such.
b) Rs. 7,500 per month or part of the month for each goods carriage (other than heavy goods vehicle) / Rs. 1000 per ton of gross vehicle weight per month or part of the month in case of heavy goods vehicle, during which the goods vehicle is owned by the assessee, in the previous year or actual amount earned whichever is higher. Part of the month would be considered as full month. (Applicable from A.Y 2019-20)
further deduction can be claimed on account of remuneration and interest paid to partners (computed as per the Income-tax Act,1961).
While computing income as per the provisions ofsections 44AE, separate deduction on account of depreciation is not available, however, the written down value of any asset used in such business shall be calculated as if depreciation as persections 32is claimed and has actually been allowed.

• If a person adopts the presumptive taxation scheme of section 44AE, then is he required to maintain books of account as per section 44AA

Section 44AAof the Income-tax Act, 1961 has provisions relating to maintenance of books of account by a person engaged in business/profession. Thus, a person engaged in business/profession has to maintain books of account of his business according to the provisions ofSection 44AA.
In case of a person opting for the presumptive taxation scheme ofsection 44AE, the provisions ofSection 44AArelating to maintenance of books of account will not apply.
In other words, if a person adopts the provisions ofsection 44AEand declares his income as:
a) Rs. 7,500 per month or part of the month for each goods carriage, during which the goods vehicle is owned by the taxpayer, in the previous year. Part of the month would be considered as full month. (not applicable from A.Y 2019-20)
b) Rs. 7,500 per month or part of the month for each goods carriage (other than heavy goods vehicle) / Rs. 1000 per ton of gross vehicle weight per month or part of the month in case of heavy goods vehicle, during which the goods vehicle is owned by the taxpayer, in the previous year or actual amount earned whichever is higher. Part of the month would be considered as full month. (Applicable from A.Y 2019-20)
then he is not required to maintain the books of accounts underSection 44AAin respect of business covered under the presumptive taxation scheme ofsection 44AE.

• If a person adopts the presumptive taxation scheme of section 44AE, then is he liable to pay advance tax in respect of income from business covered under section 44AE

There is no concession as regards payment of advance tax in case of a person who is adopting the presumptive taxation scheme ofsection 44AEand, hence, he will be liable to pay advance tax even if he adopts the presumptive taxation scheme ofsection 44AE.

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