Presumptive income from Business & Profession -One Must know


Presumptive income from Business & Profession -One Must know

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Income Tax
this article explains the meaning of presumptive income meaning under income tax act

 What is Presumptive Income under Income Tax Act ?

 Presumptive income under section 44AD and 44ADA. As per section 44AA income Tax act 1962, Every person who is carrying on business or profession is required to maintain books of accounts.Presumptive taxation means income is calculated on presumptive basis rather than on actual basis.

An assessee adopting these provisions is not required to maintain the regular books of account and is also exempt from getting the books of account audited.

 

The scheme of section 44AD is designed to give relief to small assessees engaged in any business (except the business of plying, hiring or leasing of goods carriages referred to in section 44AE)

 

Applicability of the Scheme : 

The provisions of section 44AD are applicable to such resident assessee who is an Individual, Hindu Undivided Family and Partnership Firm but not Limited Liability Partnership Firm.

Moreover, the provisions of section 44AD cannot be adopted by an assessee who is engaged in any profession as prescribed under section 44AA or is carrying on an agency business or is earning income in the nature of commission or brokerage. The important criteria of the scheme is the turnover or gross receipts from the eligible business. To opt for the scheme the turnover should not exceed Rs.2,00,00,000. 

For a clear view ,you can read the below comparasion table:

A simple table to understand at a glance, the provisions of Sections 44AD, 44AE and 44ADA

Particulars Section 44AD Section 44AE

44ADA
Eligible taxpayer Resident Individual, Resident HUF, Resident Partnership firm (excludes LLPs) and
Who has not claimed any profit linked deductions (i.e., Section 10A, 10AA, 10B, 10BA) and deductions under Section 80HH to 80RRB		 Any taxpayer who owns not more than 10 goods carriages at any time during tax year
“Owns” also means goods carriage taken on hire or installment where the amount payable is still due		 Resident taxpayer
Eligible business/ profession Any business other than business covered under Section 44AE Business of plying, hiring or leasing of goods carriages Legal, medical, engineering or architectural, accountancy profession, technical consultancy, interior decoration or any other profession notified by the Board in the official gazette
Monetary threshold Total turnover or gross receipts not exceeding Rs 2 crores Not applicable Total gross receipts not exceeding Rs 50 lakhs
Prescribed / presumptive income
  • 6% of total turnover or gross receipts of a tax year received by account payee cheque/bank draft, ECS through bank account on or before due date of filing the return of income
  • 8% of total turnover or gross receipts of a tax year in all other cases
 Rs 7500 per goods carriage for every month or part of the month during which the goods carriage is owned by the taxpayer in the tax year

 

Or Amount claimed to be actually earned
Whichever is higher

 50% of total gross receipts in a tax year
Person specifically excluded
  • Person carrying on specified profession
  • Person earning commission or brokerage income
  • Person carrying on agency business
 Not applicable Not applicable
Additional provisions
  • No other deductions for business expenses which are normally allowed can be claimed for eg. depreciation, rent, administrative expenses etc
  • Written down value of assets can be computed as if depreciation is and has always been claimed
  • No other deductions for business expenses which are normally allowed can be claimed for eg. depreciation, rent, administrative expenses etc
  • Is such taxpayer is a partnership firm, salary and interest paid to partners is allowed as deduction from prescribed income above
  • Written down value of assets can be computed as if depreciation is and has always been claimed
  • No other deductions for business expenses which are normally allowed can be claimed for eg. depreciation, rent, administrative expenses etc
  • Written down value of assets can be computed as if depreciation is and has always been claimed
Payment of advance tax Entire advance tax can be paid by last installment of advance tax i.e., 15 March of a year
In case of failure to do so, interest is leviable @ 1% on shortfall as per Section 234C		 No concession in payment of advance tax. Same shall be paid in four installments as per advance tax provisions Entire advance tax can be paid by last installment of advance tax i.e., 15 March of a year
In case of failure to do so, interest is leviable @ 1% on shortfall as per Section 234C

 

Note: Any amount paid by way of advance tax on or before 31st day of March shall also be treated as advance tax paid during the financial year ending on that day.

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