Part 2 – Presumptive taxation Scheme 44AD, 44DA ; 44AE

Applicability of Presumptive Taxation Scheme under section 44ADA:

Presumptive Taxation scheme under section 44ADA designed for the small taxpayers who are engaged in providing professional services.

Eligibility of Presumptive Taxation Scheme under section 44ADA:

Person engaged in specified professional services can avail the presumptive taxation benefit under section 44ADA

1) Accountancy

2) Engineering or architectural

3) Medical

4) Legal

5) Interior decoration

6) Technical consultancy

7) Any other profession as notified by CBDT

Manner of income computation in case person opting presumptive taxation scheme under section 44ADA:

Professionals whose total gross receipt does not exceed 50 lakhs in a financial year can avail the benefit of presumptive taxation.

Under provisions of presumptive taxation under section 44ADA, income will be calculated on a presumptive basis, i.e. 50 percent of the gross total professional receipts. Moreover, a person can declare higher income.

No Further expenses will be allowed as deduction:

A person adopting presumptive taxation scheme, 50% of his total professional receipts will be computed as professional income and no further expense will be allowed. Expenses under section 30 to 38 will be deemed to have been applied. No separate deduction of depreciation will be allowed as the same is cover under section 32.  However, the value of the assets will be shown on written down values.

Payment of advance tax:

A person opting for the taxation on presumptive basis is also liable for the advance tax payment.

Maintenance of Books of Accounts:

A person opting for presumptive taxation under section 44ADA is not required to maintain books of accounts (which is required to be maintained under normal case under section 44AA)

Opting IN or OUT of Presumptive Taxation Scheme:

A Person who is eligible for Presumptive taxation scheme can anytime opt for Presumptive Taxation Scheme under section 44ADA. However, a person can opt to get out of this presumptive scheme but once he opts to get out of this scheme then he can not avail this benefit for next 5 years.

Presumptive Taxation Scheme under Section 44AE 

Applicability of Presumptive Taxation Scheme under section 44AE:

This Presumptive scheme under section 44AE is for small taxpayers who are engaged in the business of plying, leasing or hiring of goods carriages.

Eligibility Criteria of Presumptive Taxation Scheme under section 44AE:

Eligibility for opting Presumptive Taxation Scheme based upon eligible taxpayer and eligible business under section 44AE. Under the provision of the section 44AE, the presumptive taxation scheme is available to every person (i.e. HUF, Individual, Firm, Company etc.).

Moreover, a person engaged in plying, hiring or leasing business and does not own more than 10 10 goods carriage vehicle during at any point of time in the year can avail the benefit of Presumptive taxation scheme.  Any person having more than 10 goods carriage vehicle cannot opt presumptive taxation scheme.

The main criterion of the scheme is not to own more than 10 goods carriage vehicle at any time during the year. The only person not having more than 10 goods carriage vehicle can take the advantage of presumptive taxation scheme under section 44AE.

This Presumptive Taxation Scheme does not applicable to those who run trucks on hire without owning it (Circular 684, dt. 10-6-1994)

The eligible person is not allowed claim any deduction, expense (section 30 to 38 of the Income Tax Act) if its availing benefit of section 44AE except interest paid to partners and remuneration subject to the provisions of section 40 (b).

Manner of Computation of Income under Presumptive Taxation under section 44AE:

An Eligible person opting for presumptive taxation scheme of section 44AE, his income will be calculated on an estimated basis.

An eligible person In the business of plying , leasing and hiring of goods carriage vehicle who does not own more than 10 vehicles during any time in the year, his income under this presumptive scheme would be deemed to be Rs. 7500 per vehicle per month. Further, No expense will be allowed except interest paid to partners and remuneration subject to the provisions of section 40 (b).

The written down value of the asset used in the business of plying , leasing or hiring of goods carriage vehicle shall be calculated as if the person has claimed depreciation as per the prescribed rates.

Maintenance of Books of Accounts:

A person opting for presumptive taxation under section 44AE is not required to maintain books of accounts (which is required to be maintained under normal case under section 44AA)

SOME OTHER PROVISIONS OF PRESUMPTIVE TAXATION SCHEME UNDER SECTION 44AE

1. The return of deemed income can be filed by any class of persons (Individual, HUF, Firm Company Etc.)
2. Income so computed under presumptive taxation scheme @ 7500 per vehicle per month further no expense will be allowed as a deduction under any section. However, interest paid to partners and remuneration subject to the provisions of section 40 (b) will be allowed.
3. The provisions of Section 44AA (which deals with maintenance of books of accounts) and the provisions of the Section 44AB shall not apply for the eligible businesses showing income under section 44AE.
4. The eligible person may disclose higher income. However, if the taxpayer discloses a lower than specified than he will be required to comply with the provisions of section 44AA and 44AB.
5. No TDS implication i.e. if the Transporter furnishes his PAN then no TDS to be deducted on the amount paid to such Transporter.
6. Under the current provisions of the IT Act, where a taxpayer sustains any expenditure, which require payment in excess of Rs 20,000 in cash, such expenditure is not allowed as a deduction under section 40(A)3 of the IT Act. This limit has been increased to 35000/- for eligible business which income is being computed under Presumptive Taxation Scheme.

Applicability of the provisions relating to payment of advance tax:

There is no concession in respect of payment of advance tax in case of a person opts for Presumptive taxation scheme under section 44AE of IT Act. Even though its paying tax under presumptive taxation scheme the person has to comply with the provisions of the Advance Tax. Hence the eligible person is liable to pay advance tax.

Read first Part of the Presumptive Tax Scheme under Income Tax Act