FAQs on Tax on Presumptive Taxation Scheme 44AD/44ADA/44AE
What is Presumptive Taxation Scheme?
It is a scheme which provides some relief to small business persons from handling of books of accounts. A person who adopt Presumptive Taxation Scheme can declare income at a prescribed rate and will not be required to maintain regular books of accounts.
For small taxpayers, the Income-tax Act, 1961 has framed presumptive taxation schemes as given below:
• Section 44AD : Computation of income on estimated basis in the case of taxpayers [being a resident individual, resident Hindu undivided family or resident partnership firm (not being a limited liability firm] engaged in certain business subject to certain conditions.
• Section 44ADA : Computation of professional income on estimated basis for assessee being a resident in India and engaged in a profession referred to in section 44AA(1) subject to certain conditions.
• Section 44AE : Computation of income on estimated basis in the case of taxpayers (being an Individual, HUF, AOP, BOI, Firm, Company, Co-operative society or any other person may be resident or non-resident) engaged in the business of plying, leasing or hiring goods carriages, subject to certain conditions.
• Section 44B : Taxation of shipping profits derived by a person being a non-resident in India, subject to certain conditions.
• Section 44BB : Computation of taxable income of a person being a non-resident (may be an India citizen or a foreign citizen) from activities connected with exploration of mineral oils, subject to certain conditions.
• Section 44BBA : Computation of income in respect of foreign airlines, subject to certain conditions.
• Section 44BBB : Computation of profits and gains of foreign companies engaged in the business of civil construction, subject to certain conditions.
Who can adopt Presumptive Taxation Scheme under section 44AD?
The presumptive taxation scheme of section 44AD can be adopted by following persons:
1) Resident Individual
2) Resident Hindu Undivided Family
3) Resident Partnership Firm (not Limited Liability Partnership Firm)
In other words, the scheme cannot be adopted by a non-resident and by any person other than an individual, a HUF or a partnership firm (not Limited Liability Partnership Firm). Further, this Scheme cannot be adopted by a person who has made any claim towards deductions under section 10A/10AA/10B/10BA or under sections 80HH to80RRB in the relevant year.
Who cannot adopt Presumptive Taxation Scheme under section 44AD?
The scheme of section 44AD is designed to give relief to small taxpayers engaged in any business, except the following businesses:
Business of plying, hiring or leasing goods carriages referred to in sections 44AE.
(I) A person who is carrying on any agency business.
(II) A person who is earning income in the nature of commission or brokerage
(III) Any business whose total turnover or gross receipts exceeds two crore rupees.
Apart from above discussed businesses, a person carrying on profession as referred to in section 44AA(1) is not eligible for presumptive taxation scheme under section 44AD.
Can a commission agent adopt Presumptive Taxation Scheme us 44AD?
A person who is earning income in the nature of commission or brokerage cannot adopt the presumptive taxation scheme of section 44AD. Insurance agents earn income by way of commission and, hence, they cannot adopt the presumptive taxation scheme of section 44AD.
Can a professional adopt Presumptive Taxation Scheme us 44AD?
A person who is engaged in any profession cannot adopt the presumptive taxation scheme of section 44AD.
However, he can opt for presumptive taxation scheme under section 44ADA and declare 50% of gross receipts of profession as his presumptive income. Presumptive Scheme under section 44ADA is applicable only for resident assesse whose total gross receipts of profession do not exceed fifty lakh rupees.
What is the turnover limit for Presumptive Taxation Scheme us 44AD?
The presumptive taxation scheme of section 44AD can be opted by the eligible persons if the total turnover or gross receipts from the business do not exceed the limit prescribed under of Rs. 2,00,00,000. In other words, if the total turnover or gross receipt of the business exceeds Rs. 2,00,00,000 then the scheme of section 44AD cannot be adopted.
How to calculate taxable income in Presumptive Taxation Scheme us 44AD?
In case of a person adopting the provisions of section 44AD, income will be computed on presumptive basis, i.e., @ 8% of the turnover or gross receipts of the eligible business for the year. Income shall be calculated at rate of 6% in respect of total turnover or gross receipts which is received by an account payee cheque or draft or use of electronic clearing system or through such other electronic mode as may be prescribed.
Income at higher rate, i.e., higher than 8% can be declared if the actual income is higher than 8%.
If a person adopt Presumptive Taxation Scheme us 44AD can he claim deductions also?
In case of a person who is opting for the presumptive taxation scheme of section 44AD, the provisions of allowance/disallowances as provided under the Income-tax Law will not apply and income computed at the presumptive rate of 8%/6% will be the final taxable income of the business covered under the presumptive taxation scheme and no further expenses will be allowed or disallowed. However, the assessee can claim deduction under chapter VI-A.
What if a person opt out from Presumptive Taxation Scheme?
If a person opts for presumptive taxation scheme then he is also require to follow the same scheme for next 5 years. If he failed to do so, then presumptive taxation scheme will not be available for him for next 5 years. He is required to keep and maintain books of account and he is also liable for tax audit as per section 44AB from the AY in which he opts out from the presumptive taxation scheme.
Who can take advantage of Presumptive Taxation Scheme under section 44ADA?
The presumptive taxation scheme of sections 44ADA can be adopted by a person resident in India, carrying on specified profession whose gross receipts do not exceed fifty lakh rupees in a financial year. Following professions are specified profession:
1) Legal
2) Medical
3) Engineering or architectural
4) Accountancy
5) Technical consultancy
6) Interior decoration
7) Any other profession as notified by CBDT
How to calculate taxable income in Presumptive Taxation Scheme us 44ADA?
In case of a person adopting the provisions of sections 44ADA, 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%.
If a person adopt Presumptive Taxation Scheme us 44ADA can he claim deductions also?
A person who adopts the presumptive taxation scheme is deemed to have claimed all deduction of expenses. Any further claim of deduction is not allowed after declaring profit @ 50%. However the assessee can claim deduction under chapter VI-A.
Who can take advantage of Presumptive Taxation Scheme under section 44AE?
The scheme of sections 44AE is available to the person who owns not more than ten goods carriages at any time during the previous year and who is engaged in the business of plying, hiring or leasing such goods carriages.
Can a person who owes more than 10 goods vehicle can adopt 44AE?
The presumptive taxation scheme of sections 44AE can be adopted by a person who is engaged in the business of plying, hiring or leasing goods carriages and who does not own more than 10 goods vehicles at any time during the year. Thus, if a person owns more than 10 goods vehicles at any time during the year, then he cannot take advantage of this scheme.
How to calculate taxable income in Presumptive Taxation Scheme us 44AE?
In case of a person who is opting for the presumptive taxation scheme of sections 44AE, the provisions of allowance/disallowances as provided under the Income-tax Act,1961 will not apply and income computed at the presumptive rate :
a) Rs. 7,500 per month or part of the month for each goods carriage, during which the goods vehicle is owned by the assessee in the previous year. Part of the month would be considered as full month (not applicable from A.Y 2019-20)
If the actual income is higher than the presumptive rate, then such higher income can be declared if the taxpayer wants to declare as such.
b) Rs. 7,500 per month or part of the month for each goods carriage (other than heavy goods vehicle) / Rs. 1000 per ton of gross vehicle weight per month or part of the month in case of heavy goods vehicle, during which the goods vehicle is owned by the assessee, in the previous year or actual amount earned whichever is higher. Part of the month would be considered as full month. (Applicable from A.Y 2019-20)
Income computed at the presumptive rate as specified above will be the final income and no further deduction shall be allowed under sections 30 to 38 including depreciation and unabsorbed depreciation. However, in case of taxpayer, being a partnership firm deduction can be claimed on account of remuneration and interest paid to partners (computed as per the Income-tax Act,1961). However the assessee can claim deduction under chapter-VIA.
What is heavy goods vehicles?
Heavy goods vehicles means any goods carriage vehicle whose gross vehicle weight exceeds 12000 kilograms.
If a person adopt Presumptive Taxation Scheme, is he liable to pay advance tax?
There is no concession as regards payment of advance tax in case of a person who is adopting the presumptive taxation scheme, hence, he will be liable to pay advance tax.
Read here:
FAQs on Tax on Presumptive Taxation Scheme 44AD/44ADA/44AE
FAQs on TDS (Tax Deducted at Source)
FAQs on filing of Income Tax Return (ITR)
FAQs on Income and Computation of Income
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