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The option of the presumptive scheme has always been an interesting as well as a confusing issue among taxpayers (businesses and professionals). The presumptive taxation scheme was introduced to provide relief to small taxpayers from the tedious job of maintenance of books of account u/s 44AA and getting the accounts audited u/s 44AB. Under the said scheme, the taxpayer can declare income at a prescribed rate and avail of the benefits u/s 44AD, 44ADA, and 44AE. In this article, we will understand the provisions of the presumptive taxation scheme under sections 44AD, 44ADA, and 44AE.
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Scheme of presumptive taxation extended for non-residents: The Finance Minister has proposed expanding the presumptive taxation scheme to include non-residents involved in setting up or operating electronics manufacturing facilities in India. This new regime is designed to support non-residents engaged in the business of establishing or running facilities for the manufacturing or production of electronic goods, articles, and related products in India. It will cater to non-residents, providing services or technology to residents in India. The non-residents will be able to calculate profits at 25% of the amount received for such services.
These changes will be effective from 1 April 2025, i.e., for FY 2025-26
Presumptive income scheme is designed for small businesses and professionals, which allows you to declare income at a fixed rate on their total turnover, rather than having to maintain complex books of accounts, thus making tax compliance easier.
Small business owners form a large part of the Indian economy and have a significant contribution to the country’s GDP. However, maintaining the books of accounts and getting them audited can seem like a tedious job for many of them. The Income Tax Department came up with the presumptive income tax scheme to provide respite to such small business owners from the requirement of maintaining books of accounts and getting the accounts audited. It is applicable for small taxpayers like freelancers, doctors, lawyers, advocates, professionals, MSME businesses, and contractors. There are 3 sections that cover the provisions of the presumptive income scheme. These sections have been explained in detail in the next sections.
It is designed to give relief to small taxpayers, being resident individuals, resident HUF, and resident partnership firms (not LLP) engaged in any business who have not claimed deductions u/s 10A/10AA/10B/10BA, or 80HH to 80RRB for the relevant year.
Any business other than the following businesses is eligible for the presumptive income under section 44AD
You can pay the entire advance tax by the last installment date, i.e., 15th March of the financial year. If you fail to pay the full amount by this date, the shortfall will attract interest at 1% per month, as specified under Section 234C.
The presumptive taxation scheme of section 44AD can be exercised only if your total turnover or gross receipts from the business do not exceed 3 crores and if the cash receipts of such businesses are less than 5% of the total receipts.
Note: If you opt for the presumptive taxation scheme, you must continue using it for the next 5 years. If you discontinue it before completing 5 years, you will be barred from using the scheme for the next 5 years and will also have to maintain books of accounts and get them audited.
Even if you have opted for the presumptive taxation scheme under section 44AD, you still need to file your ITR accurately and on time to avoid penalties and notices. Hire an expert CA from Tax2win to ensure accurate ITR filing.
Budget 2023 increased the threshold u/s 44ADA to Rs 75 lakhs from Rs 50 lakhs, provided the cash receipts should be less than 5%.
Are you an engineer? a lawyer? an interior decorator? Or any other specified professional? Then, this section 44ADA is for you! This section extends the presumptive scheme to professionals. The highlights of this scheme are as follows :
The presumptive taxation scheme u/s 44ADA is designed to give relief to a person resident in India whose total gross receipts do not exceed Rs. 75 lakh and is engaged in the specified professions, being the following:
In case, you are adopting the provisions of section 44ADA, your income will be computed @50% of the total gross receipts of the profession for the year, and any further claim of deduction(s) of expenditures is not admissible after declaring profit @ 50% though you can declare profit more than 50% too if you wish.
However, if you declare profit less than 50%, and your income exceeds the basic exemption limit, then you will be required to maintain the books of accounts u/s 44AA and to get your accounts audited u/s 44AB.
The income computed under this scheme will be the final taxable income of the profession covered under the presumptive taxation scheme, and no further expenses will be allowed or disallowed even on account of depreciation.
The provisions relating to advance tax, maintenance of books of account, and audit of accounts are the same as discussed above. Further, the provision of opting for the scheme for a continuous 5 years is not applicable to professionals.
For example, if your gross receipts for the year 2022-23 amount to Rs. 4,80,000, then your presumptive income shall be Rs. 2,40,000, i.e., 50% of Rs. 4,80,000.
Furthermore, taxpayers opting for the presumptive scheme under section 44ADA are required to pay their advance tax on or before 15th March of the relevant previous year. If they fail to do so, they might attract a penalty under section 234C.
The scheme u/s 44AE is designed to give relief to every person (an individual, HUF, firm, or company) who is engaged in the business of plying, hiring, or leasing goods carriages and who does not own more than 10 goods carriage vehicles at any time during the relevant year.
Note: The calculation is made for the period during which the goods carriage is owned by the taxpayer.
The rules for claiming deductions, depreciation, written-down value, advance tax, maintenance of books of account, and audit requirements remain the same as outlined earlier. However, only partnership firms can additionally claim deductions for partner remuneration and interest under this section.
Example:
If you run a business of plying, hiring, or leasing goods carriages and own 7 vehicles throughout the year, your income under Section 44AE will be ₹6,30,000 (₹7,500 × 7 vehicles × 12 months).
Section 44AD – If a taxpayer chooses the presumptive taxation scheme under Section 44AD for any financial year, they must continue using it for the next five years. If they stop using the scheme in any of these years, they become ineligible to opt for Section 44AD for the next five financial years. During these five years of ineligibility, the taxpayer must maintain regular books of account, and an audit becomes mandatory if their total income exceeds the basic exemption limit.
Example:
If a taxpayer opts for Section 44AD in Year 1 and Year 2, but opts out in Year 3, they cannot choose Section 44AD from Year 4 to Year 8. They must maintain books and get them audited during this period if their income crosses the basic exemption limit.
Section 44AE and Section 44ADA – These sections do not have such continuity conditions.
Hope this guide helped you get some insights into the presumptive taxation scheme. Whether you have opted for the presumptive taxation scheme or not, you still have to file ITR at the end of the year. Tax2win provides the best ITR filing solution for your needs. It is a smart, AI-integrated tax-filing portal that automatically selects the applicable ITR form and also pre-fills 90% of the data. With Tax2win, you can complete ITR filing within a few minutes. And if you need help, our CAs are always available at your service. From tax planning to tax filing and notice assistance, our CAs have got you covered. Book an eCA now!
from both businesses, as well as a profession?
Yes, a person can use 44AD and 44ADA simultaneously if he has income from both businesses as well as a profession.
You need to have at least one goods carriage vehicle in order to be eligible to show income u/s 44E while filing a return. Otherwise, without a single goods carriage vehicle, an individual cannot be said to be engaged in the business of goods carriage and hence would not be eligible for showing presumptive income u/s 44E.
Section 44ADA applies to resident assessees. Since an RNOR is also a resident assessee, it applies to you as well. Hence, you can file returns under 44ADA.
Yes, a management consultant can avail presumptive taxation under section 44AD, since a management consultant is not covered under the persons excluded from applicability of Section 44AD.
Yes, the limit of 5 years also applies to Section 44ADA
Section 44AD is applicable to small businesses to provide them ease of compliance and save them from the requirement of maintenance of detailed books and getting them audited annually. Hence, small businesses can avail the benefit of showing 8% profit even if it is 20%. However, ethically, they should show the actual amount of profit as 8% is the minimum profit to be shown.
Google Adsense earnings are of the nature of commission income as they are received for the display of advertisements on the person’s page, video, or other online content. Since commission and brokerage income have been specifically excluded from the applicability of Section 44AD, and neither are they included in the applicability of Section 44 ADA, which applies only to certain specified professions.
NO, you cannot file ITR 4 if a person earns income from brokerage for A.Y. 2023-24 since ITR 4 is for individuals showing business income u/s 44 AD, and brokerage has been specifically excluded from the scope of Section 44AD.
