Presumptive Taxation

4 Nov 2022

PRESUMPTIVE TAXATION


     The Income Tax Department gives relaxations to small businessmen and professionals in filing their income tax return. There are some problems for small businessmen and professionals to maintain books of accounts like lack of knowledge, inability to manage, expensive, etc. Therefore, the Income Tax Department introduced the Presumptive Taxation tool and for this purpose Section 44AD, 44ADA and 44AE added in Income Tax Act, 1961. We will discuss in brief about taxation in these three sections below.


  1. Section 44AD:

  • Eligible Assessee: Resident individual, HUF or Partnership Firm (Except LLP) engaged in eligible business and who has not claimed deduction under section 10AA or deductions under chapter VI ‘C’ in respect of certain incomes.

  • Eligible Business: Any business, other than business referred to in section 44AE, whose total turnover or gross receipts in the previous year equal to or less than 2 crore.

  • Presumptive Income: Here is the following two conditions:

  1. 8% of turnover or gross receipts or higher amount claimed as profit.

  2. 6% of turnover or gross receipts or higher amount claimed as profit when gross receipts or sales turnover received by the way of banking channels (A/c payee cheques, NEFT, RTGS, IMPS, Net Banking, UPI, Paytm, Debit & Credit Cards etc.) 

  • Requirement of Maintenance of Books of Account: Not required to maintain books of account if an eligible assessee declares his income under section 44AD. However after declaration income u/s 44AD, it is mandatory to declare income under presumptive basis upto successive 5 assessment years. If assessee not declare profit under presumptive basis for aforesaid period or declare less profit the aforesaid percentage and his total income exceeds basic exemption limit then he is liable to maintain books of account u/s 44AA(2) as well as get his account audited u/s 44AB.

Notes: This section is not applicable to (i) A person carrying on profession specified u/s 44AA(1), (ii) A person earning income in the nature of commission or brokerage, (iii) A person carrying on any agency business.


  1. Section 44ADA: 

  • Eligible Assessee: Resident Individual or Partnership firm (except LLP), engaged in any profession specified u/s 44AA(1), namely, Legal, Medical, Engineering, Architectural Profession, Accountancy or Technical Consultancy Profession, Interior Decoration or notified profession (authorized representative, Film artist, Company Secretary, profession of information technology).

  • Eligible Business or Profession: Any profession specified u/s 44AA(1), whose gross receipts less than or equal to Rs. 50 lakhs in the relevant previous year.

  • Presumptive Income: 50% of gross receipts of such profession or higher amount claimed as a profit. 


  1. Section 44AE:

  • Eligible Assessee: Under this section those assessee can declare their presumptive income who are engaging in goods transportation business (Logistics Business) owning not more than 10 goods carriages at any time during the previous year.

  • Eligible Business: Business of hiring, plying or leasing goods carriages.

  • Presumptive Income: Presumptive income should be different for different types of vehicle which has discussed below:

  • For Each Heavy Goods Vehicle: Rs 1000 per ton of gross vehicle weight or unladen weight, as the case may be for every month or part of a month.

  • For Each Vehicle Other Than Heavy Goods Vehicle: Rs 7500 per month or part of a month during which such vehicle is owned by the assessee or an amount to have been actually earned from such vehicle, whichever is higher.


Meaning of certain terms for the purpose of section 44AE


  • Heavy Goods Vehicle: Any goods carriage, the gross vehicle weight of which exceeds 12,000 Kilograms.

  • Gross Vehicle Weight: Total weight of the vehicle and load certified and registered by the registering authority as permissible for that vehicle.

  • Unladen Weight: The weight of a vehicle or trailer including all equipment ordinarily used with the vehicle or trailer when working but excluding the weight of driver or attendant and where alternative part or bodies are used the unladen weight of the vehicle means the weight of the vehicle with the heaviest such alternative body or part


Benefits of Taxation on Presumptive Basis:

  1. No requirement to maintain books of account u/s 44AA(1) when assessee file his ITR on the basis of presumptive income.

  2. Not required to pay advance tax in 4 installments assessee can pay all advance tax on 15th March in the relevant previous year. This benefit is not available u/s 44AE.

  3. Save time and money.


FAQs

Q.1) Which ITR Form wants to choose while filing income tax return for presumptive income?

Ans) ITR-4

Q.2) Can commission agents opt for presumptive taxation?

Ans) No, they are liable to maintain books of account hence their return should be filed in Form ITR-3.

Q.3) Can freelancers opt for presumptive taxation?

Ans) Yes.

Q.4) Should we need to give expenses details in our ITR form under presumptive taxation? 

Ans) No, We have to give information about gross receipt/turnover and Profit only.


















Faizahmed Solkar