By CA Gauri Chadha
If you are a professional earning income up to Rs 2 crore or less in a financial year or running a business with turnover not exceeding Rs 2 crore, then you can save yourself from tonnes of paperwork. The presumptive tax scheme under Section 44AD and section 44ADA of Income Tax allows tax relief to individual/ businesses wherein maintaining books of accounts, preparing profit and loss account or balance sheet and audit are exempted. This rule gives relief to small taxpayers by allowing them to declare their income at the prescribed rate. Let’s have a look at the dos and donts of presumptive tax scheme.
Section 44AD
Eligibility – Any assessee whose turnover is less than Rs 2 crore and is not engaged in the business of plying, hiring or leasing of goods carriages (since Section 44AE applies to this), or is a person carrying on a profession like CA, Doctor, Engineer etc. as covered in Section 44AA, or is receiving income like commission or brokerage or is carrying on any agency business is eligible to be covered under this section. Section 44AD is available only for resident individuals, HUF and partnership firms therefore not available to non-residents, LLPs or companies.
Benefits – Any person taking the benefit of Section 44AD is not required to maintain books of accounts and there is no requirement of the audit until and unless the profit declared is less than 8% of turnover I.e minimum 8% of the turnover is to be declared as profit or actual whichever is higher. Although there are people who declare 8% even if actual profit is higher, which according to my judgment is tax evasion. In such cases minimum, 6% can be declared for the receipts which have been received online either through net banking, cheque etc. i.e. other than cash mode. Also, the liability to pay advance tax as per normal provisions is not to be followed in such cases and the whole of the tax can be paid by 15Th March.
Restrictions – It also puts some restrictions on the frequent switch over between “declaring profits on the presumptive basis” and “declaring lower profits by maintaining books and furnishing audit report” in different years. An assessee who once takes the benefit of this section is required to show profit under this section only for subsequent 5 years else he shall not be able to take this benefit for next 5 years from the year in which normal provisions were followed.
Which ITR to be filed – In case of presumptive tax, ITR 4 needs to be filed, which is relatively painless in comparison to ITR 3, which is for normal businesses.
Section 44ADA
Eligibility – Since section 44AD specifically disallows professionals such as Doctors, CAs, engineers, legal, accountancy, architects, interior decorators etc. from taking the benefit of this section, Section 44ADA was introduced solely for such professionals whose total revenue does not exceed Rs 50 lakh. Section 44ADA is available only for resident individuals, HUF and partnership firms therefore not available to non-residents, LLPs or companies.
Benefits – If any professional opts for this scheme, he can declare a minimum 50% of his total receipts as profit and will not be liable to maintain complete books of accounts. There is no restriction of following this for a 5-year regime in this section like in Section 44AD.
