In order to relieve small business owners and taxpayers from undergoing the tedious work of maintaining the books of accounts, getting them properly audited for tax records, the Income tax Act has introduced the presumptive taxation scheme under the section 44AD and the section 44AE.
The provisions of the section 44AD are relevant for resident assesse, an individual, Hindu Undivided family and Partnership Firm, but not Limited Liability partnership Firm. The particular section has restrictions on certain categories of assessees that can choose the scheme, unlike section 44 AE. Only particular categories of resident assesses in question can choose the specific scheme.
The presumptive taxation scheme under the discussed provision can be chosen by the entitled assessee who is involved in any business apart from the business of plying, hiring or leasing goods carriages referred to in the section 44AE and whose earnings or gross receipts from such trade do not exceed the given limit of audit under the section 44AB.
Section 44AB approves the Tax Audit to be applicable to the assessee carrying on the trade, if the turnover exceeds Rs. 1, 00, 00,000 effectively from the previous year 2012-2013. The limit for the previous year 2011-12, was Rs. 60, 00,000.
All these provisions are applicable and enjoyable by the assessee when no claim for deductions has been sought for under: Section 10 A: where special provisions are referred with respect to recently established units in Special economic Zones.
Section 10 AA: where special provisions are offered with respect to recently established undertakings in the free trade zone
Section 10B : where special provisions are given with respect to recently established hundred percent export-oriented undertakings.
Section 10BA: where special provisions are offered with respect to the export of certain commodities or goods or under sections 80HH to 80 RRB in the respective year.
Additionally, the provisions of section 44AD cannot be accepted by an assessee who is involved in any profession as referred under the section 44AA or keeping on with agency business or is earning profits in the manner of commission or brokerage.
Under the section 44AA, any individual keeping on with any of the following professions, it is mandatory to maintain books of account. It includes legal, medical, engineering, architectural, Chartered accountants, technical consultancy, interior designers and all such other professions that may be included or notified by the central board of direct taxes.
The main and the most significant feature of the scheme is the consideration of the income or turnover of the qualified business activity. If one needs to take advantage of the scheme, the turnover should not exceed the limit of Rs.1, 00, 00,000, which is already mentioned above in the discussion. An audit of the books of accounts is required under the section 44ABfor businesses when receipts exceeds Rs.1,00,00,000 and the scheme would not apply to the particular business.
It is time that we understand various features of the scheme as to how benefits can be achieved from the scheme under the section 44AD: The net earning is computed @ 8% of the total receipts of the business in question. The assessee is not allowed to claim any deductions under the section 30 to 38 inclusive of depreciation and unabsorbed depreciation.
You should also keep in mind that the percentage of 8% is the least prescribed percentage for availing the benefits of the scheme under the section 44AD, which clarifies that when the assessee attains higher profits over 8%, the exceeding amount is considered real profits.
When the profits of a partnership firm are calculated, the following aspects need to be considered. When the particular partnership firm chooses the scheme, it should be permitted the deduction of the amount on remuneration and interest that are paid to partners within specified limits as contained under the provision of the section 40(b). Alternatively, in a partnership firm, the separate deduction in the net income calculated according to the taxation scheme is allowed regarding remuneration and interest paid to partners.
In addition, no disallowance can be effected under sections 40, 40A and 43B from the income calculated at the above rate. Hence, no disallowance will be applicable under sections 40,40A and 43B for an assessee choosing the presumptive taxation scheme under the section 44AD.
There is no need to pay any kind of advance tax: An individual choosing for the presumptive taxation scheme under section 44AD will not be subject to pay advance tax with respect to the earning from business coverd under the section 44AD.
The presumptive taxation scheme under the section 44 AE can be accepted by an individual who is involved in the trade of plying, hiring or leasing of goods carriages and who has no more than 10 vehicles for goods transport at any time during the entire year. The particular benefit can be enjoyed by any individual or a Hindu undivided family or a firm or a company and so on.
There is a fixed rate chart for calculating the income under the scheme. It is calculated @ Rs.7, 500 per month per vehicle or part thereof during the tenure when the goods vehicle has been owned by the assessee in the respective year. However, part of the month would be taken as a full month for computation of taxes. You need to take care of the fact that if the authentic income is found to be higher than the presumptive rate of income per month per vehicle, it is obligatory to declare the higher income value.
You must know which Income Tax return to be filed: If you choose the presumptive taxation schem under the section 44AD or the section 44AE, you can choose to file ITR4S or SARAL when you do not get any income from other professions or businesses. If you have additional income from various business and professions inclusive of professions which can opt for the presumptive taxation scheme , you should file ITR 4.
There are plenty online platforms that provide options to add a number of income resources on presumptive schemes. Quicko.com is an efficient website that takes full care of your income through presumptive basis. It helps select the perfect ITR for your business so that you become worry-free and feel immensely comfortable.