Presumptive Taxation under Income Tax Act, 1961 (By CA Gulshan Zade - Nagpur, Maharashtra)
To provide relief to small taxpayers from tedious task of maintaining
books of accounts and getting them audited, a presumptive taxation
scheme is framed which allows the assessee to declare income at
prescribed rates and pay tax thereon, thereby avoiding the tedious work
of maintaining books of accounts and audit.
Relevant Sections under the scheme:
- 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.
Section 44AD – The section aims at providing relief to small tax payers engaged in small businesses subject to certain conditions.
Turnover Limit – The option to declare income u/s 44AD can only be opted by the businesses having turnover not exceeding Rs.2 crore.
Persons eligible under section 44AD:
- Resident Individual
- Resident Hindu Undivided Family
- Resident Partnership Firm
Persons not eligible under section 44AD:
- Non-residents
- A person other than Individual, Hindu Undivided Family, a Partnership firm
- A limited Liability partnership
- A person who has made claim towards deductions under section 10A/10AA/10B/10BA or under sections 80HH to 80RRB.
Businesses not eligible under section 44AD:
The following businesses are not eligible under the scheme –
- Business of plying, hiring or leasing goods carriages referred to in sections 44AE.
- A person who is carrying on any agency business.
- A person who is earning income in the nature of commission or brokerage
- Any business whose total turnover or gross receipts exceeds two crore rupees.
- A person carrying on profession as referred to in section
44AA(1) is not eligible for presumptive taxation scheme under section
44AD.
Computation of taxable business income under section 44AD:
- 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 taxpayer has more than 1 business, then the aggregate turnover of all the business should be considered.
- Income shall be computed at the rate of 6% instead of 8% if
turnover/gross receipt is received by an account payee cheque or an
account payee bank draft or use of electronic clearing system through a
bank account or through such other electronic mode as may be prescribed
during the previous year or before the due date of filing of return
under section 139(1).
- A person may voluntarily disclose his business income at more than 8% or 6%, as the case may be, of turnover or gross receipt.
- In case of a person who is opting for the presumptive taxation
scheme of section 44AD, the provisions of allowance/disallowances as
provided for under the Income-tax Act will not apply and income computed
at the presumptive rate of 6% or 8% will be the final taxable income of
the business covered under the presumptive taxation scheme.
- While computing income as per the provisions of section 44AD,
separate deduction on account of depreciation is not available. However,
the written down value of any asset used in such business shall be
calculated as if depreciation as per section 32 is claimed and has been
actually allowed.
Benefits of opting section 44AD:
- If a person adopts the provisions of section 44AD and declares
income @ 6% or 8% (as the case may be) of the turnover, then he is not
required to maintain and audit the books of account as provided for
under section 44AA and 44AB respectively in respect of business covered
under the presumptive taxation scheme of section 44AD.
- Generally advance tax needs to be paid as per below mentioned chart –
| On or before 15th June |
15% of advance tax |
| On or before 15th Sept |
45% of advance tax |
| On or before 15th Dec |
75% of advance tax |
| On or before 15th March |
100% of the advance tax |
However, for assessees covered
under section 44AD and section 44ADA (under presumptive taxation scheme)
of the income-tax Act, 1961, are required to pay advance tax on or
before 15th Mar.
Other Important Provisions relating to section 44AD:
- If a person opts for presumptive taxation scheme then he is
also required 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.
Section 44ADA – Section 44ADA aims at providing relief to small taxpayers engaged in specified profession.
Turnover Limit – The option to declare income u/s 44ADA can be exercised by professional if gross receipts does not exceed Rs. 50 Lakhs.
Eligible persons who can opt for presumptive taxation u/s 44ADA
Professional resident in India being –
- Legal
- Medical
- Engineering or Architectural
- Accountancy
- Technical Consultancy
- Interior Decoration
- Any other profession as notified
Computation of Income u/s 44ADA
- U/s 44ADA income is computed at 50% of total gross receipts of the
profession. Income higher than 50% can be declared by the person.
- A person declaring income u/s 44ADA is deemed to have claimed all expenses and no further expenses will be allowed.
- Deduction for depreciation is not allowable.
Other important points relating to Section 44ADA
- A person opting to declare income u/s 44ADA is liable to pay advance tax on or before 15th March of the previous year.
- A person opting to declare income u/s 44ADA is not required to maintain books of accounts u/s 44AA.
- If a person declares income at lower than 50%, then he has to maintain books of accounts u/s 44AA and get them audited u/s 44AB.
Section 44AE – The section aims at providing relief to small taxpayers engaged in the business of plying, leasing and hiring.
Eligible person under section 44AE –
- The income can be declared u/s 44AE by person who is engaged in the
business of plying, leasing, hiring of goods carriages and who does not
own more than 10 vehicles at any time during the year.
Computation of Income u/s 44AE –
- 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.
- Part of the month would be considered as full month.
- If the actual income is higher than the presumptive rate, i.e.,
higher than Rs.1 ,000/Rs. 7,500, then such higher income can be
declared.
- Heavy Goods Vehicle means any goods carriage having gross vehicle weight exceeding 12,000 kilograms.
- The income computed at the rate of Rs. 1,000/Rs. 7,500 per goods
vehicle per month will be the final taxable income of the business and
no further expenses will be allowed or disallowed.
- In case of a taxpayer, being a partnership firm, opting for the
presumptive taxation scheme, from the income computed at the presumptive
rate of Rs. 7,500 per goods vehicle per month, further deduction can be
claimed on account of remuneration and interest paid to partners.
- While computing income as per the provisions of section 44AE, separate deduction on account of depreciation is not available.
Other Important points relating to Section 44AE –
- In case a person opts to declare income u/s 44AE, he is not required to maintain books u/s 44AA.
- A person opting to declare income u/s 44AE is required to pay advance tax before 15th march of the previous year, failing which will attract interest u/s 234C.
- If a person declares income at rates lower than those prescribed u/s 44AE he is required to get his books audited u/s 44AB.
Section 44B
Special provision for computing profits and gains of shipping business in the case of non-residents
- U/s 44B, in the case of an assessee, being a non-resident, engaged
in the business of operation of ships, a sum equal to seven and a half
per cent of the aggregate of the below mentioned amounts –
- The amount paid or payable (whether in or out of India) to the
assessee or to any person on his behalf on account of the carriage of
passengers, livestock, mail or goods shipped at any port in India
AND
- the amount received or deemed to be received in India by or on
behalf of the assessee on account of the carriage of passengers,
livestock, mail or goods shipped at any port outside India.
shall be deemed to be the profits and
gains of such business chargeable to tax under the head “Profits and
gains of business or profession”.
The amount referred to in clause (i) or
clause (ii) shall include the amount paid or payable or received or
deemed to be received, as the case may be, by way of demurrage charges
or handling charges or any other amount of similar nature.
Section 44BB –
Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils
- U/s 44BB in the case of an assessee, being a non-resident, engaged
in the business of providing services or facilities in connection with,
or supplying plant and machinery on hire used, or to be used, in the
prospecting for, or extraction or production of, mineral oils, a sum
equal to ten per cent of the aggregate of the below mentioned amounts –
- The amount paid or payable (whether in or out of India) to the
assessee or to any person on his behalf on account of the provision of
services and facilities in connection with, or supply of plant and
machinery on hire used, or to be used, in the prospecting for, or
extraction or production of, mineral oils in India;
AND
- The amount received or deemed to be received in India by or on
behalf of the assessee on account of the provision of services and
facilities in connection with, or supply of plant and machinery on hire
used, or to be used, in the prospecting for, or extraction or production
of, mineral oils outside India.
shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession."
- An assessee may claim lower profits and gains than the profits and
gains specified in that sub-section, if he keeps and maintains such
books of account and other documents as required under sub-section (2)
of 44AA and gets his accounts audited and furnishes a report of such
audit as required under section 44AB.
- For the purpose of computation –
“plant” includes ships, aircraft,
vehicles, drilling units, scientific apparatus and equipment, used for
the purposes of the said business
“mineral oil” includes petroleum and natural gas.
Section 44BBA –
Special provision for computing profits and gains of the business of operation of aircraft in the case of non-residents
U/s 44BBA, in the case of an assessee,
being a non-resident, engaged in the business of operation of aircraft, a
sum equal to five per cent of the aggregate of the below mentioned
amounts –
The amount paid or payable (whether in
or out of India) to the assessee or to any person on his behalf on
account of the carriage of passengers, livestock, mail or goods from any
place in India
AND
The amount received or deemed to be
received in India by or on behalf of the assessee on account of the
carriage of passengers, livestock, mail or goods from any place outside
India.
shall be deemed to be the profits and
gains of such business chargeable to tax under the head “Profits and
gains of business or profession.
Section 44BBB –
Special provision for computing
profits and gains of foreign companies engaged in the business of civil
construction, etc., in certain turnkey power projects.
- U/s 44BBB, in the case of an assessee, being a foreign company,
engaged in the business of civil construction or the business of
erection of plant or machinery or testing or commissioning thereof, in
connection with a turnkey power project approved by the Central
Government in this behalf, a sum equal to ten per cent of the amount
paid or payable (whether in or out of India) to the said assessee or to
any person on his behalf on account of such civil construction,
erection, testing or commissioning shall be deemed to be the profits and
gains of such business chargeable to tax under the head “Profits and
gains of business or profession”
- An assessee may claim lower profits and gains than the profits and
gains specified in that sub-section, if he keeps and maintains such
books of account and other documents as required under sub-section (2)
of section 44AA and gets his accounts audited and furnishes a report of
such audit as required under Section 44AB.
