Presumptive taxation schemes under the Income Tax Act of India are designed to simplify tax compliance for small taxpayers by allowing them to declare income at a prescribed rate without maintaining detailed accounts.
When opting for presumptive taxation, the taxpayer would not be required to maintain books of accounts as prescribed u/s 44AA of the IT Act or get such books audited
Presumptive taxation schemes under the Income Tax Act of India are designed to simplify tax compliance for small taxpayers by allowing them to declare income at a prescribed rate without maintaining detailed accounts.
Presumptive taxation can also benefit professionals. Individuals who are residents of India engaged in a profession as specified u/s 44AA (i.e., legal, medical, engineering, etc.) whose gross receipts do not exceed Rs 50 lakh (which would be enhanced to Rs 75 lakh if cash receipts constitute no more than five per cent of total gross receipts) are considered to have 50 per cent of total gross receipts as the presumptive income.
Benefits Of Presumptive Taxation
Taxpayers would not be required to maintain books of accounts as prescribed u/s 44AA of the IT Act or get such books audited.
“Also, taxpayers opting for the presumptive scheme are not liable to pay advance tax on a quarterly basis vis-à-vis other taxpayers. Such taxpayers can pay 100 per cent of advance by March 15 of the relevant financial year,” says Suresh Surana, a Mumbai-based chartered accountant. Income tax returns (ITRs) can be filed in ITR-4 (Sugam) which is a comparatively simpler form as compared to other ITRs.
Limitations To Keep In Mind
“One needs to remember no deduction can be claimed u/s 30 to 38 of the IT Act with regards to any expenditure incurred by the taxpayer. Such deduction would be deemed to have been already allowed,” says Surana.
Deductions related to the partner’s remuneration and interest are not allowed under section 40(b) from the presumptive income calculated under sections 44AD and 44ADA. Additionally, the Written Down Value (WDV) of assets is determined using notional depreciation on an annual basis.
Furthermore, if a taxpayer declares income under section 44AD for a particular year but fails to opt for the presumptive scheme in any of the subsequent five consecutive years, they will not be eligible to claim the presumptive taxation benefits for the next five years following the year they did not declare income under section 44AD.
Taxpayers opting for presumptive scheme u/s 44AD cannot claim specific deductions (for instance, u/s 10AA, 80IA to 80RRB, etc.). “Further, such presumptive scheme is only available for such taxpayers earning income like commission or brokerage or engaged in the business of plying, hiring or leasing goods carriages u/s 44AE or carrying on agency business,” says Surana.