Everything you need to know about Presumptive Taxation
The advantage of Section 44AD of the IT Act has been extended to Professionals (like CAs, Lawyers, and Doctors Etc.) as well. A professional whose total receipts during the financial year is less than fifty Lakhs is eligible for presumptive taxation U/s 44AD and can disclose his income equal to 50% of his gross total Receipts.
As per the provisions contained in the section 44AD of the IT Act, an assessee can show his income to be 8% of his total turnover and can pay tax on such computed income. Such computed income would be liable for taxation as per the normal income tax slab rates.
Section 44AD: Presumptive Taxation (for business)
U/s 44AD of the Income Tax Act, 8% of the turnover would be presumed to be the income of the assessee, provided that the total turnover is less than Rs. 100 lacs in a particular financial year. If the total turnover, of the taxpayer, is more than Rs. 100 lacs (1 Crore), then the income would be computed as per the normal provisions of the Act and the taxpayer would be required to get his books of accounts audited under the provisions of the section 44AB.
However, the threshold limit of 100 lakhs has been increased to 200 lakhs in Budget 2016. This revised limit would be applicable from Financial Year 2016-17 onwards.
In addition, if a taxpayer is adopting section 44AD and presumes his income to be 8% of total turnover, then he won’t be able to claim any expense or depreciation. Under section 44AD, all the deduction under the section 30 to 38 deemed to have been applied and no further deduction would be allowed to the assessee.
But the remuneration and interest paid to partners shall be eligible as a deduction from the income so computed under the section 44AD. However, such remuneration and interest paid to the partners shall be subject to conditions specified u/s 40(b) of the IT Act.
The Advance Tax provisions would also not be applicable in cases where section 44AD is applied.
Application of Presumptive Taxation U/s 44AD
This section of presumptive taxation applies to all businesses except for the business of hiring, plying or leasing of goods. This section isn’t applicable for plying, hiring and leasing business because a specific section 44AE already there for these businesses.
As Section 44AD is only applicable for business not for professionals. Only individuals, HUF and partnership firms are eligible for adopting presumptive taxation U/s 44AD. LLPs are specifically excluded from this section.
The assessee may decide not to adopt the presumptive taxation scheme and may declare his income lower than 8% of the gross total turnover. In such a case, the taxpayer shall have to maintain the books of accounts and get his accounts audited by a CA.
COMPUTATION OF TURNOVER
The following would be included in the computation of total turnover:
- Central Excise, VAT, Cess and other Levy
- Sales of unusable empties and supplies
- Any charges charged for delivery as service charges
The following will not be considered as part of the turnover:
- Any Deposit or Advance received from the customer
- Any consideration on sale of fixed asset received
- Any kind of cash or other discounts allowed
Some Important Points in Respect of Presumptive Taxation (44AD)
- If assessee carries more one business, then total turnover of all the businesses shall be clubbed.
- Where the assessee is carrying on business as well as a then the provisions of the section 44AD shall be applied business income. Income earned as a would be computed under the normal provisions of the IT Act.
- Deductions of Chapter VI-A will be available to the assessee opting for presumptive taxation.
- In case an assessee is opting for presumptive taxation, he should file ITR Form 4S –.
Presumptive Taxation for Professionals (Section 44ADA)
A professional who’s gross total receipts does not exceed Rs. 50 Lakhs in a financial year can opt for presumptive taxation under section 44ADA from.
Under section 44ADA the income of a professional would be deemed to be 50% of the gross total receipts for the year.
The following professionals are who can opt for this Section:
1. Legal
2. Medical
3. Engineering
4. Architectural Profession
5. Profession of Accountancy
6. Technical Consultancy
7. Interior Decoration
Computation of Income U/s 44ADA
Under this scheme, if a professional then he won’t be able to claim any expense or depreciation. Under section 44ADA, all the deduction under the section 30 to 38 deemed to have been applied and no further deduction would be allowed to the assessee.
Consequently, the WDV (written down value) of any asset used in the profession of the assessee would be deemed to have been calculated as if the assessee had claimed and had actually been allowed the deduction in respect of depreciation for the relevant assessment years.
Moreover, the assessee is not required to maintain books of accounts as per the provisions of the section 44AA and get the books of accounts audited U/s 44AB in respect of such income unless the assessee shows that the profits and gains from the abovementioned profession are lower than the profits or gains assumed to be his income under the provisions of the section 44ADA and his income exceeds the maximum limit which is not chargeable to tax.
Regards,
Pallav Singhania
CAclubindia
