Presumptive Taxation in India 💵
All you need to know💫
In ancient Rome, during the time of Julius Caesar, a tax system known as "centesima rerum venalium" was employed. It applied a presumptive tax rate of 1% on the sale price of all goods sold in markets. This ancient precursor to modern presumptive taxation systems showcases how the concept of estimating income for tax purposes has an intriguing historical lineage. Stay with us to explore the contemporary application of presumptive taxation in India
The Presumptive Taxation Scheme in India was introduced to ease the tax compliance burden for small businesses and professionals, reducing the complexities of meticulous bookkeeping and auditing.
What is the Presumptive Taxation Scheme?
The Presumptive Taxation Scheme, also known as the Section 44AD, 44ADA, and 44AE of the Income Tax Act, 1961, simplifies the tax compliance process for small businesses and professionals. It provides a different way to figure out how much income is taxable. This means taxpayers can state their income using a set rate without keeping complex records or going through audits.
Criteria for Opting for the Presumptive Taxation Scheme
Eligible Assessee : This scheme is available to Resident individuals, Hindu Undivided Families (HUFs), and partnerships firms but not to limited liability partnership firm(LLPs) and companies
Nature of Business or Profession:
Business Eligibility (Section 44AD): As per Section 44AD, any business which has total turnover in the previous year not exceeding Rs. 3crores (amended in Budget 2023) can opt to be taxed presumptively. Under presumptive taxation, the business must declare profits at the rate of 8% in case of non-digital sale transactions and/or 6% for digital sale transactions
Profession Eligibility (Section 44ADA): In case of an assessee being a resident in India engaged in profession and whose total gross receipts does not exceeds Rs.50 lakhs in previous year on account of such profession must declare atleast50% of gross receipts as profit for the financial year.
Transport Business (Section 44AE): In the case of an assessee who owns not more than ten goods carriages at any time during the previous year and who is engaged in the business of plying, hiring or leasing such goods carriages.
Maintaining Books of Accounts: No need to maintain books of accounts or carry income tax audit of accounts under presumptive scheme.
No Deductions: The business/professionals declaring profits under the above mentioned sections are not allowed to claim any other deductions/expenditures against their profits. However, a partnership firm can claim deduction for remuneration and interest paid to partners
Advance Tax Payment: Persons opting for presumptive taxation are liable to pay the entire amount of advance tax on or before 15thMarch of the previous year
What are the Benefits of the Presumptive Taxation Scheme?
Simplified Compliance: This scheme reduces the burden of maintaining extensive records, making tax compliance easier for small businesses and professionals.
No Audit Requirement: The scheme exempts taxpayers from mandatory tax audit requirement.
Lower Tax Liability: This scheme can sometimes result in lower tax liability. For instance, under Section 44AD.your net profits is considered as 6% / 8% of your turnover even when the actual profits are more than 6%/8% of the revenue.
Increased Turnover Limit: The turnover limit under Section 44AD has been increased from Rs. 2 crores to Rs. 3 crores in Budget 2023if the cash receipts of such businesses are less than 5% of the total receipts, and for professionals budget 2023 increased the threshold u/s 44ADA to Rs75 lakhs from Rs 50 lakh, provided cash receipts are less than 5%of total receipts.
The Presumptive Taxation Scheme can be a game-changer for small businesses and professionals, simplifying tax compliance and reducing the administrative burden. However, assessing eligibility and considering your financial situation before opting for it is essential.
Whether you're considering the Presumptive Taxation Scheme or need assistance with any other tax-related matter, we're here to help. Don't hesitate to seek expert guidance customized to your unique circumstances.
Step into a simplified tax world with Presumptive Taxation!