Presumptive Taxation Scheme or PTS is a scheme wherein there is no requirement to maintain books of accounts. Further, in order to avail this scheme, the taxpayer must have a turnover below the prescribed limit. In simple words, the PTS is for small taxpayers who do not require to maintain books of account.
In addition to the above, the Income Tax Act, 1961 mandates that every person engaging in business or profession has to maintain regular books of account and get these books of accounts audited. However, in order to give relief to small taxpayers, the Act provides for provisions of presumptive taxation scheme under Section 44AD, Section 44ADA and Section 44AE.
Why there is need for Presumptive Taxation Scheme?
Maintaining books of accounts on daily basis involves lot of compliances which can be a tedious work for small taxpayers. Therefore, in order to reduce the work load and liability on these small taxpayers, they have been provided with the scheme of presumptive taxation.
Also Read: 10 Ways to save your taxes
Additionally, a person adopting the PTS can declare income at a prescribed rate and, in turn, is relieved from the job of maintenance of books of account and also from getting the accounts audited.
When can a taxpayer opt for Presumptive Taxation Scheme?
The taxpayer can opt for PTS only if the turnover does not exceed the following limits:
– Business taxpayers: Rs. 2 crores
– Professionals: Rs. 50 lacs
Note 1:
The above turnover limits are subject to certain terms and conditions wrt some businesses.
Note 2:
Through the Union Budget, 2023 the new presumptive taxation limits under Section 44AD & Section 44ADA applicable from the FY 2023-24 (AY 2024-25) are Rs. 75 lacs and Rs. 3 crores respectively. This new limit however, is subject to the condition that 95% of the receipts must be through online modes.
Meaning of presumptive taxation scheme
For small taxpayers, the following are the presumptive taxation schemes as per the Income Tax Act:
– Firstly, PTS under Section 44AD
– Secondly, PTS under Section 44ADA
– Thirdly, PTS under Section 44AE
Also Read: Income Tax Audit: Small Taxpayers Or Presumptive Income
About presumptive taxation under Section 44AD
The PTS under section 44AD gives relief to small taxpayers engaging in any business.
The provisions of Section 44AD are applicable to
– Resident Individual
– HUF
– Partnership firm (not LLP)
On the contrary, the provisions of section 44AD are not applicable to
– Firstly, to Non resident individual
– Secondly, to Limited Liability Partnership
– Thirdly, to person who has made any claim towards deductions under section 10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant year.
– Fourthly, to business of plying, hiring or leasing of goods carriages referred to in section 44AE.
– Fifthly, to a person who is carrying on any agency business.
– Sixthly, to a person who is earning income in the nature of commission or brokerage
– Seventhly, to person carrying on profession mentioned under section 44AA(1)
– Eightly, to Insurance agent
– Lastly, to person whose total turnover or gross receipts for the year exceed Rs. 2,00,00,000 or Rs. 3,00,00,00 (if 95% of the receipts are through online mode – from FY 2023-24 onwards).
Also Read: Section 194D: TDS On Insurance Commission
Presumptive taxation under Section 44ADA
The presumptive taxation under section 44ADA gives relief to small taxpayers engaged in a specified profession.
Eligible persons who can take advantage of the presumptive taxation of section 44ADA are
– Firstly, legal
– Secondly, medical
– Thirdly, engineering
– Fourthly, accounting
– Fifthly, technical consultancy
– Sixthly, interior decoration
– Lastly, any other profession as notified by CBDT
Also Read: Deduction Under Section 80C & Its Allied Sections
Applicability of presumptive taxation under Section 44AE
The scheme of section 44AE is applicable to small taxpayers in the business of plying, hiring or leasing of goods carriages.
The eligible taxpayer and eligible business for the purpose of the scheme of section 44AE are:
– Every person (i.e., an individual, HUF, firm, company, etc.)
– In addition to this, such person must not own more than 10 goods vehicles at any time during the year.
Also Read: Which Tax Regime Suits You: Old or New?
Limitations of Presumptive Taxation Scheme
The limitations of presumptive taxation scheme under different provisions are as follows:
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Computation of Presumptive Taxation Scheme
Computation of presumptive taxation scheme under Section 44AD, 44ADA and 44AE is as follows:
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