Presumptive taxation

This query is : Resolved

Manoj (Querist)
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24 August 2011 Dear All,

I have few question to be discussed with you all in respect to presumptive taxation. You all requested to please put your opinions on these questions:

1. Presumtive taxation is an alternate method of computing tax liability or not?

2. Presumptive taxation is mandatory or optional?

3. Presumptive Taxation is at the option of Assessing Officer or at the option of taxpayer?

4. Newly introduced section 44AD of Income Tax Act, mandatory or optional to the taxpayer?

5. If it is not mandatory then it is optional in full or in part i.e., some provisions are mandatory and rest is optional?

Thanks

CA. Manoj Gupta

CA. Anoop Gadia

CA. Anoop Gadia (Expert)
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24 August 2011 it is only opted when your TO less than audit limit:

1. it is not a alternate.
2. it is optional
3. option of tax payer
4. optional
5. option in full not in part

Manoj

Manoj (Querist)
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25 August 2011 Thank you Mr. Anoop Gadia for putting your views:

Sir, i wud like to ask a counter question on your opinion:

If it is at the option of assessee to choose presumptive taxation, then whether a assessee who has not opted for presumptive taxation (newly introduced)u/s 44AD and declared a profit less than 8% on turnover below Rs. 60 lacs is required to get his accounts audited.

Whether Assessing Officer on his own can cover the assessee u/s 44AD on the ground that profit is below 8% and turnover is less than 60 lacs and assessee is running a eligible business as per section 44AD.

Pls share your views in the light of your previous views.

Thanks

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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10 August 2024 Here’s a detailed response to your questions about presumptive taxation under the Income Tax Act in India:

### **1. Is Presumptive Taxation an Alternate Method of Computing Tax Liability?**

Yes, **presumptive taxation** is an alternative method for computing tax liability. Instead of maintaining detailed books of accounts and calculating actual profit, taxpayers under presumptive taxation schemes can declare income at a prescribed rate based on their gross receipts. This method simplifies tax compliance and calculation.

### **2. Is Presumptive Taxation Mandatory or Optional?**

Presumptive taxation is **optional** for eligible taxpayers. Taxpayers who qualify for the presumptive taxation scheme can choose to opt for it. If they do not wish to use the presumptive taxation scheme, they must follow the regular method of accounting and taxation, which involves maintaining books of accounts and calculating actual profit.

### **3. Is Presumptive Taxation at the Option of the Assessing Officer or the Taxpayer?**

**Presumptive taxation is at the option of the taxpayer**, not the Assessing Officer. The taxpayer decides whether to opt for the presumptive taxation scheme based on their eligibility. The Assessing Officer does not have the discretion to mandate presumptive taxation; they only verify whether the taxpayer has opted for it correctly and whether the taxpayer meets the eligibility criteria.

### **4. Is the Newly Introduced Section 44AD Mandatory or Optional for the Taxpayer?**

**Section 44AD** is optional for the taxpayer. It provides a presumptive taxation scheme for small businesses where the gross receipts do not exceed ₹2 crore. Taxpayers can choose to opt for this scheme to simplify their tax compliance. If they do not opt for Section 44AD, they must follow the regular method of accounting.

### **5. If Presumptive Taxation is Optional, Is It Optional in Full or in Part?**

Presumptive taxation under Section 44AD is optional in full. The entire scheme is optional; there are no partial provisions that are mandatory. Taxpayers can choose to apply the presumptive taxation scheme fully or opt out and adhere to the regular accounting and taxation rules.

### **Audit Requirements if Not Opting for Presumptive Taxation:**

1. **If a taxpayer does not opt for presumptive taxation under Section 44AD and declares a profit less than 8% on turnover below ₹60 lakh:**
- **Audit Requirement:** Even if the turnover is below ₹60 lakh, if the taxpayer opts out of the presumptive taxation scheme, they are required to maintain books of accounts and get their accounts audited if their turnover exceeds ₹1 crore (₹5 crore in some cases under recent amendments).

2. **Assessing Officer’s Role:**
- **Assessing Officer’s Authority:** The Assessing Officer cannot unilaterally apply Section 44AD to a taxpayer who has not opted for it. It is the taxpayer’s choice to opt for presumptive taxation. However, the Assessing Officer will verify if the taxpayer who has opted for presumptive taxation meets the eligibility criteria and has declared income correctly as per the scheme.

### **Summary:**

- **Presumptive taxation** is an alternate method for computing tax liability and is **optional** for eligible taxpayers.
- The choice to use **presumptive taxation** is **entirely up to the taxpayer**, not the Assessing Officer.
- **Section 44AD** is optional and must be opted for in full if chosen.
- Taxpayers not opting for presumptive taxation must follow regular accounting and audit requirements.
- The **Assessing Officer** does not have the authority to impose presumptive taxation but will verify compliance if the scheme is opted for.

Always consult with a tax professional or accountant to ensure compliance with the latest regulations and to receive tailored advice based on your specific situation.