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What is the meaning of presumptive taxation scheme?
As per sections 44AA of the Income-tax Act, 1961, a person engaged in
business is required to maintain regular books of account under certain
circumstances. To give relief to small taxpayers from this tedious work,
the Income-tax Act has framed the presumptive taxat ion scheme
under sections 44AD and 44AE.
A person adopting the presumptive taxation scheme c an declare
income at a prescribed rate and, in turn, is relieved from tedious job of
maintenance of books of account.
For small taxpayers the Income-tax Act has framed t wo presumptive
taxation schemes as given below:
1) The presumptive taxation scheme of sections 44AD.
2)The presumptive taxation scheme of sections 44ADA.
3) The presumptive taxation scheme of sections 44AE.
Who is eligible to take advantage of the presumptive taxation scheme
of 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 n on-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 to 80RRB in the relevant year.
Which businesses are not eligible for presumptive taxation scheme?
The scheme of
section 44AD is designed to give relief to small
taxpayers engaged in any business, except the follo wing businesses:
Business of plying, hiring or leasing goods carriag es referred to
in
sections 44AE.
A person who is carrying on any agency business.
A person who is earning income in the nature of com mission or
brokerage
Any business whose total turnover or gross receipts exceeds two crore
rupees.
Apart from above discussed businesses, a person car rying on profession
as referred to in
section 44AA(1) is not eligible for presumptive taxation
scheme.
Can an insurance agent adopt the presumptive taxati on scheme of
section 44AD?
A person who is earning income in the nature of com mission or
brokerage cannot adopt the presumptive taxation sch eme of
section
44D. Insurance agents earn income by way of commission and, hence,
they cannot adopt the presumptive taxation scheme o f
section 44D.
Can a person engaged in a profession as prescribed under section
44AA(1) adopt the presumptive taxation scheme of se ction 44AD?
A person who is engaged in any profession as prescribed under section
44AA(1) 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 assessee whose total g ross receipts of
profession do not exceed fifty lakh rupees.
Can a person whose total turnover or gross receipts for the year exceed
Rs. 2,00,00,000 adopt the presumptive taxation sche me of section
44AD?
The presumptive taxation scheme of
section 44AD can be opted by the
eligible persons if the total turnover or gross rec eipts from the business
do not exceed the limit prescribed under
section 44AB (i.e., 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 schem e of
section
44AD cannot be adopted.
What is the manner of computation of taxable busine ss income under
the normal provisions of the Income-tax Law, i.e., in case of a person
not adopting the presumptive taxation scheme of sec tion 44AD?
Generally, as per the Income-tax Law, the taxable b usiness income of
every person is computed as follows :
Particulars Amount
Turnover or gross receipts from the
business XXXXX
Less : Expenses incurred in relation to
earning of the income (XXXXX)
Taxable Business Income XXXXX
For the purpose of computing taxable business incom
e in the above
manner, the taxpayers have to maintain books of acc ount of the
business and income will be computed on the basis o f the information
revealed in the books of account.
What is the manner of computation of taxable business income in case
of a person adopting the presumptive taxation schem e of section
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.
In other words, in case of a person adopting the pr ovisions of
section
44AD, income will not be computed in normal manner as d iscussed in
previous FAQ (i.e., Turnover less Expense) but will be computed @ 8%
of the turnover.
Income at higher rate, i.e., higher than 8% can be declared if the
actual income is higher than 8%.
As per the presumptive taxation scheme of section 4 4AD, income of a
taxpayer will be computed @ 8% of the turnover or g ross receipt and
from the income of 8% can the taxpayer claim any fu rther deductions?
Under the normal provisions of the Income-tax Law, taxable business
income will be computed after allowing deduction in respect of
expenses which are deductible as per the Income-tax Actand after
disallowing expenses which are not deductible as pe r the Income-tax
Act.
In case of a person who is opting for the presumpti ve taxation scheme
of
section 44AD, the provisions of allowance/disallowances as prov ided
under the Income-tax Law will not apply and income computed at
the presumptive rate of 8% will be the final taxabl e income of the
business covered under the presumptive taxation sch eme and no
further expenses will be allowed or disallowed.
While computing income as per the provisions of
section 44AD,
separate deduction on account of depreciation is no t available,
however, the written down value of any asset used i n such business
shall be calculated as if depreciation as per
section 32 is claimed and
has been actually allowed.
If a person adopts the presumptive taxation scheme of section 44AD,
then is he required to maintain books of account as per section 44AA?
Section 44AA deals with provisions relating to maintenance of books of
account by a person engaged in business/profession. Thus, a person
engaged in business/profession has to maintain book s of account of his
business/profession according to the provisions of
section 44AA.
In case of a person engaged in a business and optin g for the
presumptive taxation scheme of
section 44AD, the provisions of section
44AA
relating to maintenance of books of account will not apply. In
other words, if a person adopts the provisions of
section 44AD and
declares income @ 8% of the turnover, then he is no t requiredto
maintain the books of account as provided under
section 44AA in
respect of business covered under the presumptive t axation scheme
of
section 44AD.
Source: Income Tax India Website
www.incometaxindia.gov.in
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