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PRESUMPTIVE TAXATION SCHEME


PRESUMPTIVE TAXATION SCHEME SECTION 44AD, 44ADA & 44AE OF INCOME TAX ACT,1961.
To reduce the tax burden and to provide relief from tedious work to small tax assesses, the government of India has incorporated a scheme of presumptive taxation. Businesses adopting the presumptive taxation scheme are not required to maintain regular books of account. They can declare the income at a prescribed rate. The presumptive taxation scheme is framed under three sections- Section 44AD and Section 44ADA & 44AE of the Income Tax Act, 1961. Person adopting presumptive taxation schemes are exempt from getting their books of account audited .


Eligibility Criteria to avail the Benefits of Presumptive Taxation Scheme under Section 44AD :

Following types of tax assesses can adopt the provisions of presumptive taxation scheme Under Section 44AD :

Resident Individual tax payers
Hindu Undivided Families
Partnership Firm (except LLP or Limited Liability Partnership Firm)


Section 44AD Limits :

The firm or individual’s gross receipt or annual turnover in the previous year should not have exceeded Rs. 2 crores
Any firm or a person who has not claimed tax deduction under the Sections 10A, 10AA, 10B, 10BA during the assessment year can adopt the provisions of Section 44AD. Same applies for the individuals or firms who have not claimed deductions under Section 80HH to 80 RRB.
There are small businessmen who are unable to keep and maintain books of accounts for various reasons can opt for presumptive taxation and declare profits at 8% under section 44AD of Income Tax Act. When the amount of total turnover or gross receipts are received by an account payee cheque or a bank draft or use of electronic clearing system through a bank account, the assesse can declare profits at 6%.


For example, Mr. Y is running a stationary shop whose turnover is Rs. 80 lakh for the previous year. As per the provisions of Section 44AD, income will be computed on the basis of estimation at the rate of 8%/6% of gross receipts or total turnover of the eligible business for the previous year. In this case, his annual presumptive income will be Rs. 6.4 lakhs (i.e. 8% of 80 lakh) or Rs 4.8 lakhs (i.e 6% of 80 lakhs).
Opting in for the Scheme under Section 44AD :

Once a taxpayer opts for this scheme than it would be beneficial for him to file his next 5 year’s income tax return in the same scheme only.
Eligibility Criteria to avail the Benefits of Presumptive Taxation Scheme under Section 44AE :

The business of plying, hiring or leasing goods carriage vehicles are eligible for Presumptive Taxation Scheme provided the assesse do not owns more than 10 such carriage vehicles at any time during the previous year. So, there are only 2 important criteria for eligibility as mentioned above.

Business of plying, hiring and leasing goods carriage. This means that if an assessee is engaged in the business of passenger carrying vehicles or passenger transport cannot opt for such scheme.
Owning not more than 10 goods carriage vehicles. It means that a person or an assessee owning more than 10 such vehicles cannot opt for such scheme.


Section 44AE Limits

Income for such eligible assesse opting for Presumptive Taxation Scheme shall be calculated on estimated basis as explained below:.

The net total taxable income for such business shall be calculated at the rate of ₹ 7,500/- per vehicle per month or part thereof during the year in which the vehicle is owned by the assesse.
However, the calculation above shall be irrespective of the fact whether it is a light goods vehicle (less than or equal to 12MT) or a heavy goods vehicle (more than 12MT).
Also, it should be noted that part of the month shall be considered full month for the purpose of calculating income under the said section.
The income calculated above shall be the net income of the assesse and no expense in any case shall be allowed as deduction.

For example: - Mr. X is engaged in the business of plying, hiring and leasing goods carriage vehicles. He owns 9 light goods vehicles for the purpose of transportation of goods.