Presumptive Tax - section 44AD, 44ADA and 44AE for businesses, professionals, transporters
Presumptive Tax Rates under Section 44 of Income Tax Act
|Applicable Income Tax Section||Section 44AD||Section 44ADA||Section 44AE|
|Eligible business||Entities in any business excluding :
||Entities in the business of:
|Eligibility criteria, Maximum Turnover Limit||Turnover up to Rs. 2 crore in a year||Annual receipts of not more than Rs. 50 lakh in a year||Owning not more than 10 goods vehicles during the year|
|Presumptive computation of taxable income||8% of total receipts provided that non cash and electronic receipts shall be charged at 6% of gross turnover during the year. A higher income can be declared||50% of gross receipts. A higher income of more than 50% can be declared||Rs. 7,500 per vehicle per month or part thereof based on the duration for which the vehicle was owned by the person during the year|
|Tax Rate||At marginal tax rate slabs||At marginal tax rate slabs||At marginal tax rate slabs|
|Deductions or allowances||No further deductions and exemptions allowed||No further deductions and allowances allowed.||No further deductions and allowances allowed.
Exception: Partnership firm can claim deduction for and interest to the partners from the income computed at Rs 7500 per vehicle per month
|Advance tax liability||To be deposited in one installment on or before 15th March of previous year||To be deposited in one installment on or before 15th March of previous year||To be deposited in one installment on or before 15th March of previous year|
Presumptive Tax as per Income Tax Act:
Under Section 44 of Income Tax Act, any person engaged in business or profession is required to maintain book of accounts for every financial year and get them audited by certified auditors. The procedure of maintaining book of accounts and getting them audited gets cumbersome for small tax payers. Income Tax Department has formulated a scheme named as “Presumptive Tax Scheme” under section 44AD, 44ADA and 44AE of Income Tax Act which exempts the small tax payers from maintaining annual book of accounts.
Under presumptive taxation scheme, profits from business or profession are presumed/ estimated a certain percent of the annual turnover of the entity and taxed accordingly. The manner of computation of income under presumptive taxation scheme is different under sections 44AD, 44ADA and section 44AE of Income tax act.
Benefit of opting under Presumptive Taxation Scheme
- Exemption from maintaining books of accounts
- Simplifies the process Income Tax compliance
- No need to hire auditors to audit book of accounts
Presumptive tax is applicable under the three sections of Income Tax Act:
- Presumptive taxation scheme of section 44AD is applicable in case of business
- Presumptive taxation scheme of section 44ADA is applicable in case of profession
- Presumptive taxation scheme of section 44AE is applicable in case of business of plying, hiring or leasing of goods carriage.
Entities that are eligible for Presumptive Tax Scheme
- Resident individual
- Resident HUF
- Resident partnership firm excluding the partnership firm with limited liability
Entities that are not eligible for Presumptive Tax Scheme
- Non-resident individuals
- Limited liability partnership firm
Consequences if a person opts out of presumptive taxation scheme under section 44AD
When a person opts for the presumptive taxation scheme under section 44AD, he is required to follow the same scheme for next five years. In case he fails to do so, then he will not be able to avail the presumptive taxation scheme for next five years starting from the assessment year in which he chose to opt out of the scheme.
Deductions under presumptive taxation scheme
A person adopting presumptive taxation scheme is deemed to have claimed all the deduction of expense and hence, no further deductions on account of expenses (including depreciation) is allowed. However, the written down value of any asset used will be calculated as if the depreciation has been claimed under section 32 of Income Tax Act and has been actually allowed.