Interplay of Presumptive Taxation Scheme, Tax Audit and Maintaining Books of Accounts

Here is, the Interplay of the Presumptive Taxation Scheme (Section 44AD, Section 44ADA, Section 44BB, Section 44BBB, Section 44AE),  Tax Audit Applicability (Section 44 AE), and Maintaining Books of Accounts (Section 44AA).

To give relief to small taxpayers from the tedious job of maintenance of books of account and getting the books of account audited, the Income tax Act has framed the Presumptive Taxation Scheme. The taxpayer adopting the Presumptive Taxation scheme can declare income at a prescribed rate instead.

However, the provisions are not as simple as it seems.

Please note that if the company is eligible for the Presumptive Taxation Scheme, the company will maintain Books of Accounts as per the Company Act 2013.

Category of assessees eligible for Presumptive Taxation u/s section 44AD:

An Individual, Hindu undivided family or a partnership firm, who is a resident, but not a limited liability partnership firm as defined under clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009).

The eligible assessee must be carrying on any business except the business of plying, hiring or leasing goods carriages referred to in section 44AE; and whose total turnover or gross receipts in the previous year does not exceed an amount of two crore rupees.

Category of Persons not eligible for Presumptive Taxation u/s 44AD.

• Non residents;
• Persons who have made any claims towards deductions under any of the section 10A, 10AA, 10B, 10BA or deduction under any provisions of Chapter VIA under the heading “C- deductions in respect of certain incomes” in the relevant year;
• a person carrying on any agency business;
• a person carrying on profession as referred to in sub-section (1) of section 44AA;
• a person earning income in the nature of Commission or Brokerage/ Insurance Agents;
• Companies & LLPs

Category of Persons Eligible for Presumptive Taxation u/s 44ADA

A person resident in India and engaged in the following professions-

• Legal
• Medical
• Engineering
• Architecture
• Accountancy
• Technical consultancy
• Interior Decoration or
• Other professions notified by CBDT,

whose gross receipts/turnover during the financial year does not exceed Rs. 50 Lakh.

Category of Persons eligible for Presumptive Taxation u/s 44AE

Any Person (i.e. an individual, HUF, firm, company, etc.) engaged in the business of plying, hiring, or leasing of goods carriages and who does not own more than 10 goods carriages at any time during the year.