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Querist : Anonymous

Querist : Anonymous (Querist)

12 August 2011 sir
what is presumptive income and what kind of income comes in this.

U S Sharma

U S Sharma (Expert)
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12 August 2011 Read sec 44AD and 44AE of incometax

CMA. Murali

CMA. Murali (Expert)
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12 August 2011 Broadening the tax base is important to tax policy reform. Presumptive taxation involves lumpsum levies on certain small-scale business activities to whom Section 44AB is not applicable. The assessment of taxes through indicators or proxies help estimate a taxpayer’s income (estimated Income); and the estimation of minimum income irrespective of a taxpayer’s actual level of business activity (presumptive minimum income). Thus Sections 44AD, 44AE and 44AF of the Income-tax Act, 1961, provide for estimating the income under the head “Profits and gains of business and profession” in the cases of certain assessees. The following special provisions are made as per the Income-tax Act, 1961 for calculating the income on presumptive basis for those assessees :

Special provision for computing profits and gains of business of civil construction, etc. (Section 44AD) (Applicable upto A.Y. 2010-11)

Applicability :

Section 44AD applies to all the assessees engaged in the business of civil construction or supply of labour for civil construction and whose gross receipts of such activities do not exceed Rupees forty lakhs.

Explanation : .For the purposes of this section, the expression civil construction includes

The construction or repair of any building, bridge, dam or other structure or of any canal or road;

The execution of any works contract.

Presumptive income

Profit for the purpose of this section shall be a sum equal to 8% of the gross receipts paid or payable to the assessee or, a sum higher than the aforesaid sum as declared by the assessee voluntarily in his return of income.

No further deductions allowed : Once the income is declared under this section on Presumptive basis, all the deductions allowable under the provisions of sections 30 to 38 (including depreciation on assets) shall be deemed to have been already allowed, and no further deduction under those sections shall be allowed. However in case of assessee being firm, salary and interest paid to the partners shall be allowed as deduction out of such presumptive income subject to conditions and limits specified in clause (b) of section 40.

Lower Income and consequences

Income lower than the presumptive income : Where the assessee declares lower profits and gains than the profits and gains computed on presumptive basis as above, he shall be required to keep and maintain books of account and other documents as required under sub-section (2) of Section 44AA and shall also be liable to get his accounts audited and furnish a report of such audit under Section 44AB.

Turnover not to be included in other receipts : Where the assessee chooses to declare income on the basis of provisions of this section, the total turnover of the said business or the income as the case may be shall not be included in the turnover of other business or the income from the said business if any carried on by the assessee, for the purpose of provision of Sections 44AA and 44AB of the Act.

The provisions of Section 44AD w.e.f. A.Y. 2011-12 shall be substituted as under;

Applicability :

Section 44AD shall apply to an individual, Hindu undivided family or a partnership firm (excluding limited liability partnership firm ) who is resident in India and engaged in eligible business and has not claimed any deduction under any of the sections 10A, 10AA, 10B, 10BA or deduction chapter VIA under heading ‘C’ in the relevant assessment year.

For the purpose of this Section Eligible Business means:

Any business (save and except the business of plying, hiring or leasing goods carriages referred u/s 44AE) whose total turnover or gross receipt in the previous year does not exceed an amount of rupees forty lakhs

Presumptive income

Profit for the purpose of this section shall be a sum equal to 8% of the gross receipts of the assessee or, a sum higher than the aforesaid sum as declared by the assessee voluntarily in his return of income.

No further deductions allowed : Once the income is declared under this section on Presumptive basis, all the deductions allowable under the provisions of sections 30 to 38 (including depreciation on assets) shall be deemed to have been already allowed, and no further deduction under those sections shall be allowed. However in case of assessee being firm salary and interest paid to the partners shall be allowed as deduction out of such presumptive income subject to conditions and limits specified in clause (b) of section 40.

Lower Income and consequences

Income lower than the presumptive income : Where the assessee declares lower profits and gains than the profits and gains computed on presumptive basis as above, he shall be required to keep and maintain books of account and other documents as required under sub-section (2) of Section 44AA and shall also be liable to get his accounts audited and furnish a report of such audit under Section 44AB.

Special provision for computing profits and gains from the business of Goods Carriages (Section 44AE) applicable upto A.Y. 2010-11)

Applicability

Section 44AE applies to all the assessees, engaged in the business of plying, hiring or leasing goods carriages, whether a heavy goods carriage or other than a heavy goods carriage owned by the assessee.

The expressions goods carriage and heavy goods carriages have been assigned the meaning taken from section 2 of The Motor Vehicles Act, 1988.

This Section applies only to assessee owning not more than ten goods carriage vehicles (at any time during the financial year). For the purpose of this section the assessee, who, possesses the vehicles, taken on hire purchase or on installment basis and for which the whole or part of amount payable for the purchase of said vehicles is still balance would be deemed to be the owner of such vehicle and it would be taken into account while taking the number of vehicles owned. However it is not applicable to the assessee who operates such vehicles taken on hire.

Presumptive Income

As per the scheme of Section 44AE the goods carriage has been categorized into two types and the presumptive rate of income is determined as follows :

Type of Goods Carriage
Presumptive Rate of Income

up to A.Y. 2010-11
w.e.f. A.Y. 2011-12

Heavy goods carriage
Rs. 300 for every month (or part of a month) during which the goods carriage is owned by the taxpayer
Rs. 5,000 for every month (or part of the month) during which
the goods carrier is owned by the assessee

Other than heavy
goods carriage
Rs. 350 for every month (or part of a month) during which the goods carriage the owned by the taxpayer
Rs. 4,500 for every month or part of the month during which the goods carrier is owned by is assessee.

In either case the taxpayer can declare his income from such goods carriage at a rate higher than that specified above.

No further deductions allowed : Once the income is declared under this section on Presumptive basis, all the deductions allowable under the provisions of sections 30 to 38 (including depreciation on assets) shall be deemed to have been already allowed, and no further deduction under those sections shall be allowed. However in case of assessee being a firm, salary and interest paid to the partners shall be allowed as deduction from such presumptive income subject to conditions and limits specified in clause (b) of section 40.

Lower Income and consequences

Income lower than the presumptive income: Any assessee declaring lower profits and gains than the profits and gains specified under this section shall be liable keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and shall also be liable to get his accounts audited and furnish a report of such audit as required under section 44AB.

Turnover not to be included in other receipts : Where the assessee chooses to declare income on the basis of provisions of this section, the total turnover of the said business or the income as the case may be shall not be included in the turnover of other business or the income from the said business if any carried on by the assessee, for the purpose of provision of sections 44AA and 44AB of the Act.

Special provision for computing profits and gains of retail business (Section 44AF)

Applicable upto A.Y.2010-11

Applicability

Section 44AF applies to all the assessees having profits & gains from retails trade of any goods or merchandise and whose total turnover from such business does not exceed Rs. 40 lakhs.

Presumptive Income

Profit as per this provision would be a sum equal to 5% of the total turnover of the assessee from such business of retail trade or as the case may be a sum higher than the aforesaid sum as declared by the assessee voluntarily in his return of income and the same shall be chargeable to tax under the head Profits and gains of business or profession:

No further deductions allowed : once the income is declared under this section on Presumptive basis, all the deductions allowable under the provisions of sections 30 to 38 (including depreciation on assets) shall be deemed to have been already allowed, and no further deduction under those sections shall be allowed. However in case of firm, salary and interest paid to the partners shall be allowed as deduction subject to conditions and limits specified in clause (b) of section 40.

Lower Income and consequences

Income lower than the presumptive income: Any assessee declaring lower profits and gains than the profits and gains specified under this section shall be liable keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and shall also be liable to get his accounts audited and furnish a report of such audit as required under section 44AB.]

Turnover not to be included in other receipts

Where the assessee chooses to declare income on the basis of provisions of this section, the turnover of the said business or income as the case may be shall not be included in the turnover or income of other business if any carried on by the assessee, for the purpose of provision of section 44AA or 44AB of the Act.

Other provisions applicable to presumptive income under this chapter

Aggregation of Income

• For the purpose of computing total income, the income from the specified business as above provision/s shall be aggregated with the other incomes if any of the assessee from any other business or under any other heads of income, in accordance with the normal provisions of the Income-tax Act, 1961.

Chapter VIA deductions

The assessee will be eligible for all deductions under Chapter VIA. (Sections 80C to 80U) will also be available to the assessee, if the conditions mentioned therein are fulfilled.

Losses from other business

The brought forward losses shall be deductible as per the provisions laid out therewith.

Note : The provisions of section 44AF are applicable only upto the A.Y 2010-11. from the A.Y.2011-12 the provision of Section 44AD & 44AF are replaced by New section 44AD.

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