Presumptive Taxation Scheme

Know all About Presumptive Taxation Scheme

Presumptive Taxation Scheme or PTS is a scheme wherein there is no requirement to maintain books of accounts. Further, in order to avail this scheme, the taxpayer must have a turnover below the prescribed limit. In simple words, the PTS is for small taxpayers who do not require to maintain books of account.

In addition to the above, the Income Tax Act, 1961 mandates that every person engaging in business or profession has to maintain regular books of account and get these books of accounts audited. However, in order to give relief to small taxpayers, the Act provides for provisions of presumptive taxation scheme under Section 44AD, Section 44ADA and Section 44AE.

Why there is need for Presumptive Taxation Scheme?

Maintaining books of accounts on daily basis involves lot of compliances which can be a tedious work for small taxpayers. Therefore, in order to reduce the work load and liability on these small taxpayers, they have been provided with the scheme of presumptive taxation.

Also Read: 10 Ways to save your taxes

Additionally, a person adopting the PTS can declare income at a prescribed rate and, in turn, is relieved from the job of maintenance of books of account and also from getting the accounts audited.

When can a taxpayer opt for Presumptive Taxation Scheme?

The taxpayer can opt for PTS only if the turnover does not exceed the following limits:
– Business taxpayers: Rs. 2 crores
– Professionals: Rs. 50 lacs

The above turnover limits are subject to certain terms and conditions wrt some businesses.

Meaning of presumptive taxation scheme

For small taxpayers, the following are the presumptive taxation schemes as per the Income Tax Act:
– Firstly, PTS under Section 44AD
– Secondly, PTS under Section 44ADA
– Thirdly, PTS under Section 44AE

Also Read: Income Tax Audit: Small Taxpayers Or Presumptive Income

About presumptive taxation under Section 44AD

The PTS under section 44AD gives relief to small taxpayers engaging in any business.

The provisions of Section 44AD are applicable to
– Resident Individual
Partnership firm (not LLP)

On the contrary, the provisions of section 44AD are not applicable to
– Firstly, to Non resident individual
– Secondly, to Limited Liability Partnership
– Thirdly, to person who has made any claim towards deductions under section 10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant year.
– Fourthly, to business of plying, hiring or leasing of goods carriages referred to in section 44AE.
– Fifthly, to a person who is carrying on any agency business.
– Sixthly, to a person who is earning income in the nature of commission or brokerage
– Seventhly, to  person carrying on profession mentioned under section 44AA(1)
– Eightly, to Insurance agent
– Lastly, to person whose total turnover or gross receipts for the year exceed Rs. 2,00,00,000

Also Read: Section 194D: TDS On Insurance Commission

Presumptive taxation under Section 44ADA

The presumptive taxation under section 44ADA gives relief to small taxpayers engaged in a specified profession.

Eligible persons who can take advantage of the presumptive taxation of section 44ADA are
– Firstly, legal
– Secondly, medical
– Thirdly, engineering
– Fourthly, accounting
– Fifthly, technical consultancy
– Sixthly, interior decoration
– Lastly, any other profession as notified by CBDT

Also Read: Deduction Under Section 80C & Its Allied Sections

Applicability of presumptive taxation under Section 44AE

The scheme of section 44AE is applicable to small taxpayers in the business of plying, hiring or leasing of goods carriages.

The eligible taxpayer and eligible business for the purpose of the scheme of section 44AE are:
– Every person (i.e., an individual, HUF, firm, company, etc.)
– In addition to this, such person must not own more than 10 goods vehicles at any time during the year.

Also Read: Which Tax Regime Suits You: Old or New?

Limitations of Presumptive Taxation Scheme

The limitations of presumptive taxation scheme under different provisions are as follows:

Section 44AD

Section ADA

Section 44AE

Turnover should not exceed ₹2 crore

Gross annual receipt should not exceed ₹50 lacs

For heavy vehicles – ₹1,000 per month per ton of vehicle

Other than heavy vehicles – ₹7,500 per vehicle per month per vehicle

Computation of Presumptive Taxation Scheme

Computation of presumptive taxation scheme under Section 44AD, 44ADA and 44AE is as follows:

Section 44AD

Section ADA

Section 44AE

If the Income is received by the person in both cash and bank/through digital payment, then income is computed on presumptive basis at the rate of 8% of the turnover or gross receipts of the eligible business for the year.

If the income is received solely in bank/through digital payments, then the income is computed on presumptive basis at the rate of 6% of the turnover or gross receipts of the eligible business for the year.

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%

For Heavy Goods Vehicle, income will be computed at the rate of Rs. 1,000 per ton of gross vehicle weight for every month or part of a month during which the heavy goods vehicle is owned by taxpayer. In case of vehicles other than heavy goods vehicle, income will be computed at the rate of 7,500 for every month or part of a month during which the goods carriage is owned by taxpayer.

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