Presumptive Taxation Scheme u/s. 44ADA & 44AE of Income Tax Act: The Income Tax Act has introduced provisions under sections 44ADA and 44AE to ease the compliance burden of small taxpayers in India. These sections offer a Presumptive Taxation Scheme, enabling taxpayers to declare their income at a fixed rate, eliminating the need for extensive bookkeeping and account audits. In this article, we’ll explore the provisions of sections 44ADA and 44AE, their eligibility criteria, and the implications for taxpayers.
Section 44ADA: Presumptive Taxation Scheme for Professionals
A resident individual or partnership firm (not LLP) in India engaged in following professions are eligible to adopt the scheme of section 44ADA, if the gross receipts during the FY is within 50 Lakhs. A person adopting this presumptive taxation scheme can declare his income at a prescribed rate and relieved from tedious job of maintenance of books of account and getting the accounts audited.
Eligible taxpayers involved in the following professions are allowed to adopt the scheme u/s. 44ADA: Legal, Medical, Engineering or architectural, Accountancy, Technical consultancy, Interior decoration, or any other profession notified by CBDT.
Computation of taxable income u/s.44ADA
Under this scheme, income will be computed on presumptive basis, i.e., @ 50% of the total gross receipts of the profession. However, it is optional to the person to declare income of higher than 50%. A person who adopts the presumptive taxation scheme is deemed to have claimed all deduction of expenses. Any further claim of deduction is not permitted after declaring profit @ 50%. While computing income as per the provisions of section 44ADA, separate deduction on account of depreciation is not available.
However, the written down value of any asset used in such business shall be calculated as if depreciation as per section 32 is claimed and has been actually allowed. In case, a person declares income at lower rate (less than 50%), and his income exceeds the maximum amount which is not chargeable to tax, then he is required to maintain the books of account as per the provisions of section 44AA and to get his accounts audited as per section 44AB.
Filing of ITR u/s. 44ADA
ITR-4 form is to be used for filing of Income Tax returns by the taxpayers adopting the presumptive taxation scheme under section-44ADA. Due dates for filing are the same as for taxpayers under the normal scheme.
Section 44AE: Presumptive Taxation Scheme for Goods Carriage Businesses
The scheme of section 44AE gives relief to small taxpayers (individual, HUF, Firm, or Company) engaged in the business of plying, hiring or leasing of goods carriages, subject to not having more than 10 goods vehicles at any time during the Financial Year. Taxpayers adopting this scheme are relieved from tedious job of maintenance of books of account and also from getting their accounts audited. Unlike 44AD, there is no specific restriction under 44AE in regarding what type of assessee can opt this scheme.
Computation of Taxable Income u/s.44AE
For Heavy Goods Vehicle (Gross vehicle weight > 12000 Kg.), income is computed at the rate of Rs. 1,000 per ton of gross vehicle weight per month or part of month during which the vehicle is owned by taxpayer. In case of vehicles other than heavy goods vehicle, income is computed at the rate of Rs.7,500 per month or part of month during which the vehicle is owned by the taxpayer.
If the actual income is higher than the presumptive income, i.e., Rs. 1,000/Rs. 7,500 per month as the case may be, then such higher income can be declared. The presumptive income computed at the rate of Rs. 1,000 per ton or Rs. 7,500 per goods vehicle per month is the final income and no further expenses will be allowed or disallowed.
However, in case of a taxpayer, being a partnership firm opting for the presumptive taxation scheme, from the income computed at the presumptive rate of Rs. 7,500 per goods vehicle per month, further deduction can be claimed on account of remuneration and interest paid to partners. While computing income as per the provisions of section 44AE, separate deduction on account of depreciation is not available.
However, the written down value of the assets used in such business shall be calculated as if depreciation as per section-32 is claimed and been actually allowed. In case a person declares his income at lower rate (i.e., at less than Rs. 1,000 per ton or Rs. 7,500 per goods vehicle per month), he is required to maintain the books of account as per the provisions of section 44AA and also to get his accounts audited as per the provisions of section 44AB.
Filing of ITR u/s.44AE
ITR – 4 form is to be used for filing of Income Tax returns by the taxpayers adopting the presumptive taxation scheme under section 44AE. Due dates for filing are the same as for taxpayers under the normal scheme.
Conclusion-Presumptive Taxation Scheme u/s. 44ADA & 44AE of Income Tax Act
The Presumptive Taxation Scheme introduced under sections 44ADA and 44AE offers a simplified tax compliance solution for small business owners and professionals in India. It allows them to report their income and pay taxes based on a presumed income without the need for extensive bookkeeping or audits. This saves valuable time and money. However, it’s crucial to ensure that the declared income aligns with reasonable standards to avoid potential issues with tax authorities.
For more details from Income tax department, please follow the link- https://incometaxindia.gov.in/tutorials/13.%20tax%20on%20presumptive%20basis%20in%20case%20of%20certain%20eligible%20businesses.pdf
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