All you need to know about Presumptive Taxation Scheme under Income Tax Act

Last Updated On: Nov. 1, 2021, 3:08 p.m.
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PRESUMPTIVE TAX SCHEME UNDER INCOME TAX ACT

Income Tax Act, 1961 introduced the presumptive taxation scheme for the relaxation of small taxpayers who are not maintaining books of accounts and from getting their accounts audited. An individual who earns income from Business or Profession usually maintains a books of accounts which includes profit and loss, balance sheet which gives them a clear picture of the financial position of their business or profession over the Financial year.

 

What is Presumptive Tax Scheme?

Any individual, HUF, partner other than LLP opting for Presumptive Taxation Scheme can declare their income at a prescribed rate and 

 

Purpose of Presumptive Taxation Scheme:

 

Section 44ADA Presumptive taxation scheme lightens the compliance burden on small professions and helps to do their business or profession in a easier way. Under this Taxation of scheme, profits are presumed at 50% of the gross receipts.

 

 

Who are eligible for Presumptive Taxation Scheme?

Any individual, HUF, partnership firm other than LLP who is a resident of India are eligible to opt for Presumptive Taxation Scheme:

 

Following are the Presumptive Taxation Scheme is available for small taxpayers:

  • Section 44AD- Small Business
  • Section 44ADA- Professionals
  • Section 44AE- Businessess engaged in hiring of goods, leasing of goods and carriage, plying etc. 

 

Let us understand in depth about each section in this article.

 

Presumptive Taxation Scheme for Business:

Relaxation is provided to small Taxpayers who are engaged in business from maintaining any books of accounts. Engaged in business doesnot include  hiring of goods, leasing of goods and carriage, plying etc which are reffered in Section 44AE. There will be no applicabilty of Section 44AA that is maintaining books of accounts and Section 44AB conducting of audit.

The Presumptive Taxation Scheme can be availed by the following assessees;

  • Individual who is a resident
  • HUF
  • Partnership(other than Limited Liabilty Partnership) 

 

The Presumptive Taxation Scheme cannot be availed by the following assesees over the financial year;

  • Claimed Deduction under section 10A/10AA/10B/10BA
  • Claimed Deduction under 80HH to 80RRB

 

 

Presumptive Taxation Scheme for Professionals:

Professions were excluded from the Presumptive Taxation Scheme. During the Budget 2016, the government has extended the scheme to the professionals too. Hence Section 44ADA was introduced from the financial year 2016-2017 for Professions can opt for the Presumptive Taxation Scheme.

An Assessee earning income in a specified profession having a gross receipts upto Rs, 50,00,000 can opt for the Presumptive Taxation under Section 44ADA. It lightens the burden of the Professionals from maintaining the books of accounts and conduct of tax audit as per the section 44AB.

 

Presumptive Taxation Scheme- Section 44AE:

 

Section 44AE is introduced to give relaxation for small taxpayers engaged in the business of plying, hiring or leasing of goods carriages.

 

Eligibility of business income as per Section 44AE:

A person who engages in the business of plying, hiring or leasing of goods carriages and who does not own more than 10 goods vehicles at any time during the year. Including carriages taken on hire purchase or no installments.

The provisions of section 44AE are applicable to every person i.e., an individual, HUF, firm, company, etc.

 

 

 

When shall an assessee maintain books and get the accounts audited?

If an assessee meets the following criteria, then he/she must maintain books and get accounts audited under section 44AB:

  • Income from the profession is offered at a lower rate than 50% of the gross receipts
  • Total income of the assessee is more than the basic exemption
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