Presumptive Taxation Queries

I have am talking about both a proprietorship and partnership involved in design, sale and rental of specialised construction equipment.

If turnover is less than Rs.2Cr, are there any hassles to apply under presumptive taxation and charge at 6% of Gross Receipts
I assume gross receipts exclude GST on rent or sale. I am also assuming GST is not part of the topline or revenue when you compute P&L
There are some occasional mentions where AO still asks for books of accounts despite being under Section 44. Is that easily defendable, esp if there is a likelihood that actual profits are above 10%
If it’s a partnership (under Section 44), is the net income of the partnership taxed at 6% and then post tax, the profit which then gets distributed to individual partners are tax free in their income statement?
What are the deductible for a firm, is interest and salary to partners deductible before computing presumptive taxes?

Hey UrbanCap, here’s a detailed take on your presumptive taxation queries for proprietorship and partnership engaged in design, sale, and rental of specialized construction equipment:

a) Applicability of Presumptive Taxation under Section 44ADA / 44AE / 44AD (Assuming 6%)

For turnover less than Rs. 2 Crore:
Yes, you can opt for presumptive taxation if your turnover/gross receipts are below the prescribed limit (generally Rs. 2 Cr for businesses under Section 44AD).
If you qualify, you can declare 6% of your gross receipts as taxable income and pay tax accordingly. No mandatory maintenance of detailed books of accounts is required.
Hassles:
Usually minimal, but AOs may question or verify if they suspect the actual profit is higher or income is under-reported.

b) Exclusion of GST from Gross Receipts

You are correct that GST is not part of gross receipts for income tax purposes.
Gross receipts / turnover for presumptive taxation is considered exclusive of GST.
So when computing P&L or presumptive income, exclude GST collected on rent or sale from your turnover.

c) AO Asking for Books of Accounts despite Presumptive Scheme

While presumptive taxation relaxes the need to maintain books, the Assessing Officer (AO) can still ask for books or evidence if they suspect profits are higher than declared.
You can defend this by showing compliance with presumptive scheme requirements and the simplicity of the business.
However, if AO proves actual profits exceed the presumptive rate (10% or 6% depending on section), you may be asked to pay tax on actual profits.

d) Taxation of Partnership under Section 44

Partnership firm is taxed at the firm level on the presumptive income declared (6% of gross receipts).
Post payment of tax by the firm, the share of profit distributed to partners is exempt in their hands (not taxed again).
Partners will report only salary, interest, or any remuneration received from the firm as their income (if applicable).

e) Deductibility of Interest & Salary to Partners

Under presumptive taxation scheme, expenses including interest and salary to partners are NOT deductible before computing presumptive income.
The entire taxable income is calculated as a percentage of gross receipts without adjusting for expenses.
However, interest and salary paid to partners are deductible from the firm’s income only if the firm opts out of presumptive taxation and maintains proper books.

Summary Table

Query	Answer
Turnover < 2Cr, can opt presumptive?	Yes, declare 6% of gross receipts
GST part of gross receipts?	No, exclude GST
AO asking for books?	Can ask, but can be contested
Partnership tax on net income?	Firm taxed on presumptive income; partners exempt on profit share
Interest/salary to partners deductible?	Not under presumptive; yes if regular books maintained