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Presumptive Business Income FAQs, 44AD, 44AE, 44ADA | EZTax®
Presumptive Business Income to reduce the burden on SME tax payers, covering what, who, when and how one can use presumptive business income under sections 44AD, 44ADA, 44AE. Comprehensive Guide with FAQs, Use Cases, advance tax, computation, gross receipts, turnover limits, requirement of maintaining book of accounts
A comprehensive list of frequently asked questions on Presumptive Income.
To give relief to small taxpayers from this tedious work, the Income-tax Act has framed the presumptive taxation scheme under sections 44AD, 44AE and 44ADA.
A person adopting the presumptive taxation scheme can declare income at a prescribed rate and, in turn, is relieved from tedious job of maintenance of books of account.
The scheme of Section 44AD is designed to give relief to small taxpayers engaged in any business, except the following businesses:
- Business of plying, hiring or leasing goods carriages referred to in
sections 44AE. - A person who is carrying on any agency business.
- A person who is earning income in the nature of commission or brokerage
- Any business whose total turnover or gross receipts exceeds two crore rupees.
section 44AD ? Insurance agents earn income by way of commission and, hence, they cannot adopt the presumptive taxation scheme of section 44AD.
section 44AD ? If the total turnover or gross receipt of the business exceeds Rs. 2,00,00,000 then the scheme of section 44AD cannot be adopted.
NEW W.e.f 1 st Apr 2023, 44AD is applicable for MSME’s whose turnover is upto Rs 3,00,00,000 provided that Cash receipts is less than 5%
section 44AD ? In case of a person adopting the provisions of section 44AD, income will be computed on presumptive basis, i.e., @ 8% of the turnover or gross receipts of the eligible business for the year.
The presumptive income computed @ 8% is the final income and no further expenses will be allowed or disallowed
If a person adopts the provisions of section 44AD and declares income @ 8% of the turnover, then he is not required to maintain the books
Any person opting for the presumptive taxation scheme under section 44AD is liable to pay whole amount of advance tax on or before 15thMarch of the previous year. If he fails to pay the advance tax by 15th March of previous year, he shall be liable to pay interest as per section 234C.
Note:- Any amount paid by way of advance tax on or before 31st day of March shall also be treated as advance tax paid during the financial year ending on that day.
section 44ADA ? The presumptive taxation scheme of sections 44ADA can be adopted by a person resident in India, carrying on specified profession whose gross receipts do not exceed fifty lakh rupees in a financial year.
Following professions are specified profession:
- Legal
- Medical
- Engineering or architectural
- Accountancy
- Technical consultancy
- Interior decoration
- Any other profession as notified by CBDT (Profession of Information Technology, Company Secretary, Film Artist, Authorized Representative)
NEW W.e.f 1 st Apr 2023, 44ADA is applicable for Professionals whose turnover is upto Rs 75,00,000 provided that Cash receipts is less than 5%
section 44ADA ? In case of a person adopting the provisions of sections 44ADA, income will be computed on presumptive basis, i.e. @ 50% of the total gross receipts of the profession.
The presumptive income computed @ 50% is the final income and no further expenses will be allowed or disallowed.
section 44ADA ? A person opting for the presumptive taxation scheme of section 44ADA is also liable to pay advance tax.
section 44AE ? The presumptive taxation scheme of section 44AE can be adopted by a person who is engaged in the business of plying, hiring or leasing of goods carriages and who does not own more than 10 goods vehicles at any time during the year.
section 44AE ? In case of a person who is willing to opt for the presumptive taxation scheme of sections 44AE, income will be computed on an estimated basis. Income will be computed @ Rs. 7,500 per month or part thereof during which the goods vehicle is owned by the taxpayer, in the previous year. Part of the month would be considered as full month.
Note:- If the actual income is higher, than the presumptive rate, i.e., higher than Rs. 7,500, then such higher income can be declared.
If a person adopts the provisions of section 44AE, he/she is not required to maintain the books
section 44AE ? There is no concession as regards payment of advance tax in case of a person who is adopting the presumptive taxation scheme of section 44AE.