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Tax

Sravanthi (CA Final ICWA Final & M.B.A) (737 Points)

11 July 2011

Hai Friends

What is Presumptive Taxation? I want it clearly. Pls frnds help me.

Thanks in advance.

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Sravanthi (CA Final ICWA Final & M.B.A) (737 Points)
Replied 11 July 2011

PRESUMPTIVE TAXATION:

· The Concept of Presumptive Taxation was made to increase the taxability with Small Business.

· Such business does not comes to purview Sec.44AB

PARTICULARS	SEC.44 AD	SEC.44AE	SEC.44AF
Applicable To	Assessees engage in Business of Civil Construction or Supply of Labour for Civil Construction.	Assessees engage in Business plying, Hiring or leasing goods carriage.	Assessees engaged in business of RETAIL TRADE.
Explanation:	1) Construction or repairs of any building, bridge, dam or other structure or of any Canal or road. 2)Execution of any Work contract	Assessees shall not own more than 10 vehicles during the year. (Owing include Owned or taken for Hire.)	Total turnover of business shall not exceed more than 40lacs.
Presumptive Income	8% of Gross receipt Paid or Payable.	Heavy Vehicles Rs. 3500pm Other Rs.3150pm.	5% of Total Turnover
No Deduction	No Deduction shall be allowed under Sec30 to Sec38.	=Do=	=Do=
Deduction, In Case of Firm	Salary & Interest to Partner is allowed Subject to limit of Sec40.	=Do=	=Do=
Lowe Income Consequences	Lower income can be declared by Assessees in such case he shall maintain all documents as per Sec 44AA & Audit as per Sec 44AB.	=Do=	=Do=

OTHER POINTS:

· Other Provision of the Act is applicable as it is.

· For e.g.: 1) Deductions shall be allowed from Sec. 80C to Sec.80U

2) Loss from business can be set-off.

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Sravanthi (CA Final ICWA Final & M.B.A) (737 Points)
Replied 11 July 2011

Presumptive Taxation

Taxation is the most essential wing of the government’s revenue. It contributes a bulky amount to the government to meet the social and economic need of the nation. When collecting tax from the public the government tries to implement the tax structure which is extremely simple so that the general public does not feel the burden to determine and pay tax. As per the general scenario, the small business is not well equipped to duly follow the tax provisions and efficiently comply with it. Considering it income tax act provides relief to the small businesses.

When is presumptive taxation available?

As per the provisions of sec 44AD any individual, HUF or a partnership firm engaged in any business except the business of plying, hiring or leasing goods carriages can avail the benefit of presumptive taxation. The basic condition is that the total turnover/Gross Receipt in the previous year does not exceed Rs.40 lacs.

Benefit of Presumptive Taxation

· When the aforesaid conditions are satisfied, the income of the business is estimated at 8% of the total turnover or gross receipt of the business.

· No deduction in respect of the business expenditure (including depreciation on the assets used in the business) is allowed to be claimed from the deemed profits. The deductions are deemed to have been given full effect to and no additional deductions are allowed except for a few specified deductions as mentioned under the said provision.

· In case of partnership firm, the normal deduction in respect of salary and interest to partners’ u/s 40(b) shall be allowed.

Payment of Advance Tax

No advance tax is required to be paid by the assessee in case of presumptive taxation.

Maintenance of Books of accounts

The tax payer is not required to maintain specified books of account/ other documents in respect of their business. Also, there is no need to get the accounts audited and furnish an audit report.

What if profit falls below 8%?

An assessee earns profit below 8%, then he can declare lower income below deemed profits and gains. Provided he will have to maintain the books of account as per sec 44AA and will have to gets it audited as per section 44AB, irrespective of the turnover provided his total income exceeds the exemption limit.