Presumptive Taxation Scheme | Section 44AD

Presumptive Taxation Scheme Under Section 44AD

Businesses are required to maintain a detailed book of accounts, with a profit & loss statement, which gets evaluated at the year (financial year) end, on the basis of which the taxable income and corresponding tax is calculated. To give some relief to small assesses, the government has introduced a scheme referred to as Presumptive Taxation Scheme that offers reduced compliance burden. Those adopting the provisions under Section 44AD do not have to maintain the regular books of accounts and are exempt from getting their books of accounts audited.

Eligibility Criteria to get Benefits under Section 44AD

The following persons are eligible to opt for the presumptive taxation scheme of Section 44AD:

• Resident Individual

• Resident Hindu Undivided Family

• Resident Partnership Firm (with the exclusion of Limited Liability Partnership (LLP) Firms)

The following persons are not eligible to opt for the presumptive taxation scheme of Section 44AD:

• Any firm or person that has made a claim for deductions under Sections 80HH to 80RRB or under Sections 10AA, 10A, 10B, or 10BA during an assessment year.

• Businesses engaged with hiring, plying or leasing of goods carriages, as referred to under Section 44AE.

• A person running an agency business.

• A person earning income in the nature of commission or brokerage.

Presumptive Taxation Scheme

1. A resident who is an individual or HUF or Partnership firm (excluding Limited Liability Partnership firm) engaged in following professions can be part of the Presumptive Taxation Scheme - engineering, architecture, accountancy, legal, medical, technical consultancy, interior decorator, films artist, information technology and certain sports-related persons. This section applies to professionals whose total gross receipts do not surpass Rs. 50 lakhs during a financial year.

2. An essential point to be noted is that the income will be based on an estimation for those who meet the criteria and want to benefit from the Presumptive Taxation Scheme. Under this section, 8% of the turnover for the previous year will be considered as income or profits of the person. In case of professionals, 50% of their total gross receipts shall be considered as income.

3. An assessee who wants to take advantage of Section 44AD is not allowed to claim any deduction under Sections 30 to 38 (including depreciation or unabsorbed depreciation). However, the written down value - value of an asset after factoring depreciation - of an asset used in such business will be calculated as if depreciation under Section 32 is claimed and actually allowed.

Declaring Lower or Higher Income

• As per the Presumptive Taxation Scheme, income is calculated on presumptive basis at the rate of 8% of the turnover. Should the gross receipts be received via cheque or bank draft or through an electronic clearing system during the previous year, then income will be computed at the rate of 6% rather than 8%.

• The moment an eligible assessee is engaged in an eligible business, Section 44AD automatically becomes applicable to such business. In a situation where the assesses actual business income is less than 8% of gross receipts or turnover (the presumptive income as declared under the presumptive taxation scheme of Section 44AD), then there is no relief on maintaining the books of account as per the scheme. Should the actual income be high when compared with the presumptive income scheme, this provision allows the assessee to declare the higher income at his option (greater than the prescribed rate of 8%).

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DISCLAIMER: The information contained herein is generic in nature and is meant for basic educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product/Examination purpose. Subject to Amendments. Yogesh Suthar is not liable for any decision arising out of the use of this information.

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