What is Business Income on Presumptive Basis:
- As per section 44AA income Tax act 1962, every person who is carrying on business or profession is required to maintain books of accounts. However, to give relief to small tax payers from maintaining books of accounts Income tax act has come up idea of presumptive taxation scheme under section 44AD, 44ADA and section 44AE.
- Presumptive taxation means income is calculated on presumptive basis rather than on actual basis. A person opting for presumptive income has to declare income on certain percentage and is relived from maintaining books of accounts and getting audited under section 44AB.
CONDITIONS:
- Turnover must be less than 2 Crores.
- Under presumptive scheme the profits of businesses are presumed as:
1.Small business: Section 44AD applicable
8% or 6% (transactions by digital modes) of turnover, income to be declare
EXAMPLE: Mr A declaring Turnover of Rs.80 Lakh (out of 80 Lakh, 50 Lakh is through NEFT, RGTS and Net banking)
So income here will be – (8% of 30 Lakhs – Rs.2.4 Lakhs)
(6% of 50 Lakhs – Rs.3 Lakhs)
Total Presumptive income here is Rs.5.4 Lakhs
2.Transporters: Section 44AE applicable
Person who carries not more than 10 goods carriage and engaged in playing, hiring and leasing of goods carriage can cover under this sections.
- Rs.7500PM (per vehicle) to be declare as Income in case of light goods vehicle
- Rs.1000Per ton (per vehicle) to be declare as Income in case of heavy goods vehicle (applicable form FY 2018-19 onwards)
3.Professionals: Section 44ADA applicable
50% of sales with turnover less than 50 lakhs per annum to be declare as Income
The benefit of presumptive taxation which was available to small business has now extended to professionals. The following are the professionals eligible to the scheme
I. Legal
II. Engineering
III. Professional of accountancy
IV. Interior decorator
V. Architecture profession
VI. Technical consultancy
VII. Medical profession
This scheme applicable to individual or HUF who are resident only in India it is not applicable to limited liability partnerships.
Persons not eligible for presumptive scheme:
- Not applicable in case of Agency business
- Not applicable for commission or brokerage business.
- Any person who has income from Capital gain or income from house property is not eligible to file ITR 4.
- Not applicable in case of Limited liability partnership.
Note: In case of multiple business then each business can claim presumptive taxation provided that the business are eligible for presumptive scheme of taxation. If not then income is calculated as per normal provisions.
Advantages of presumptive scheme:
Maintenance of books of accounts not required
Audit of books of accounts not required
Chapter VIA deductions are available