The Income Tax Act has framed the Presumptive Income Taxation Scheme under three main sections i.e., Section 44AD, 44ADA and 44AE. A person adopting the scheme is exempted from maintaining regular books of accounts and also relieved from getting his accounts audited. Section 44AD (applicable to assessees carrying on eligible businesses) was amended to check its misuse. An assessee can opt for the presumptive income scheme u/s 44AD at any time. He can also opt out of the scheme at any time. However as per the amended law, once an assessee opts out of the presumptive scheme, then he cannot avail the benefit of this scheme for next consecutive 5 years.
Section 44AD (For Small Eligible Businesses)
The scheme can be availed by resident individual, resident Hindu Undivided Family (HUF) or resident Partnership Firm (not Limited Liability Partnership (LLP) who are engaged in eligible businesses with a total turnover upto Rs 2 crore. In case of turnover exceeding Rs 2 crore, the assessee is liable to get his accounts audited u/s 44AB of the I-T Act. However section 44AD excludes the business of plying, hiring or leasing of goods carriages (which is covered under section 44AE) and agency business from its ambit.
Computation of Presumptive Income under section 44AD
The income is computed on the presumptive basis at the rate of 8% of the turnover or gross receipts of the eligible business for the year. With the objective of boosting digital transactions among small and unorganized businesses, section 44AD was amended to reduce the rate of deemed total income from 8% to 6%. In other words, cash receipts would continue to be taxed at 8% whereas digital receipts would be taxed at 6%.
However, if a partnership firm has opted for presumptive income scheme, it cannot claim additional deduction on account of salary/remuneration paid to partners. U/s 44AD Presumptive Taxation scheme, taxpayers have to pay 100% advance tax by 15th of March of the financial year.
Section 44ADA (For Small Professionals)
Section 44ADA was introduced for small professionals from financial year 2016-17 with the objective to reduce compliance burden and facilitate the ease of carrying on profession. It is applicable to professionals carrying on eligible professions (mentioned below) and whose gross receipts do not exceed Rs 50 lakh during the financial year.
Eligible Professions under section 44ADA
• Engineering
• Legal
• Architectural profession
• Accountant
• Medical
• Technical consultant
• Interior business
Computation of Presumptive Income under section 44ADA
In case of an assessee opting for presumptive income scheme u/s 44ADA, income will be computed @ 50% of the total gross receipts of the profession (not exceeding Rs 50 lakh for a financial year).