Presumptive income under section 44AD and 44ADA
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 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.
Who can opt for presumptive scheme?
Any business with a turnover not more than 2 crore can take benefit under presumptive scheme of taxation under section 44AD. Under presumptive scheme the profits of businesses are presumed as
1. Small business : 8% of sales with a business turnover less than 2 crore – Section 44AD
(6% of total payments received digitally)
2. Transporters : 7500 per month per vehicle – Section 44AE
3. Professionals : 50% of sales with turnover less than 50 lakhs per annum – Section 44ADA
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
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
1. Not applicable in case of Agency business
2. Not applicable for commission or brokerage business
3. Not applicable in case of Limited liability partnership.
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
1. Maintenance of books of accounts not required
2. Audit of books of accounts not required
3. Chapter VIA deductions are available
4. All the expenses are assumed to be allowed
ITR 4S for small business
The main question arises for small business is that which ITR we should file if we go for presumptive scheme of taxation. Well income tax department has specifically issued ITR 4 (Sugam) for people opting for presumptive scheme of taxation. However any person who has income from Capital gain or income from house property is not eligible to file ITR 4S.