Table of Contents
1. What is presumptive taxation scheme?
Presumptive taxation scheme is a scheme offered for the benefit of small taxpayer, exempting them from maintenance of books of accounts and audit.
2. What are the various presumptive taxation schemes offered under Income tax act, 1961?
- Section 44AD – For small taxpayers engaged in business (other than business plying, hiring or leasing of goods carriages).
- Section 44ADA – For small taxpayers engaged in specified profession.
- Section 44AE – For small taxpayers engaged in the business of plying, hiring or leasing of goods carriages.
3. Who are eligible to opt for presumptive taxation scheme under section 44AD?
- Eligible Assessee
- Resident Individual
- Resident Hindu Undivided Family
- Resident Partnership Firm (not Limited Liability Partnership Firm)
4. Can I claim deduction under section 10AA if I opt to pay tax under section 44AD?
No, this scheme cannot be adopted by a person who has made any claim towards deductions under section 10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant year.
5. Can a company opt for presumptive taxation scheme under section 44AD?
No, refer the previous FAQ for eligibility under section 44AD.
6. What are considered ineligible business activities for the purpose of section 44AD?
- Plying, hiring or leasing goods carriages referred to in section 44AE.
- A person who is carrying on any agency business.
- A person who is earning income in the nature of commission or brokerage.
- A person who is engaged in any profession as prescribed under section 44AA(1)
7. What is the turnover threshold limit for opting for presumptive taxation scheme under section 44AD?
- 2 Crores.
- I.e. if the total turnover or gross receipt of the business exceeds Rs. 2 crores, then the scheme of section 44AD cannot be adopted.
8. Should I maintain book of accounts if I opt for paying tax under section 44AD?
- Maintenance & audit of books of accounts is not needed if you opt for paying tax under section 44AD.
- Section 44AA which prescribes provisions for maintaining books of accounts is not applicable to taxpayers who have opted for paying tax under section 44AD.
9. What is the manner of computing income as per section 44AD?
- Taxable income =
- 6% of turnover which is received by way of A/c payee cheque, A/c payee bank draft, ECS or through bank account.
- 8% of turnover received in cash.
- 8% of turnover not received at the time of filing of return of income under section 139.
10. Can I declare a lower income than the limit prescribed under this section?
- If you declare an income lower than 8%/6% as the case maybe and the amount of income exceeds the maximum amount not chargeable to tax (basic exemption limit),the taxpayer cannot claim the benefits of presumptive taxation scheme,
- Consequently, he is required to maintain books of accounts under section 44AA and is required to get his books audited under section 44AB.
11. I opted for presumptive taxation scheme in respect of a PY, can I convert to normal provisions from the subsequent year?
- If you are opting to pay tax under the presumptive scheme,
- You should continue to declare your income under the presumptive scheme for a continuous period of 5 years.
- If you decide to opt out before the end of 5 years, you will be ineligible to opt for presumptive scheme for subsequent 5 years starting from the year in which you file income tax under the normal provisions.
12. Can I claim deduction of any expenditure if I opt to pay tax under Section 44AD?
No expenditure under section 30 – 38 is allowed as deduction.
13. I am a firm opting to pay tax under section 44AD, can I claim deduction in respect of remuneration and interest paid to partners?
- Yes, only expenditure under section 30 – 38 is not allowed as deduction,
- Remuneration and interest paid to partners under section 40(b) of the act is allowed as further deduction to the income computed under the provisions of section 44AD since it does not fall within section 30-38.
14. Should I pay advance tax if I opt for section 44AD?
Yes, but advance tax is payable only in 1 installment (31st March of the relevant PY) for taxpayers opting to pay tax under section 44AD.