TAX ON PRESUMPTIVE BASIS IN CASE OF SMALL TAXPAYERS ENGAGED IN SPECIFIED PROFESSION
To give relief to small taxpayers from the tedious job of maintenance of books of account and from getting the accounts audited, the Income-tax Act has framed the presumptive taxation scheme under sections 44AD, section 44ADA and section 44AE.
Meaning of presumptive taxation scheme
As per the Income-tax Act, a person engaged in business or profession is required to maintain regular books of account and further, he has to get his accounts audited. To give relief to small taxpayers from this tedious work, the Income-tax Act has framed the presumptive taxation scheme under sections 44AD, 44ADA and 44AE.
A person adopting the presumptive taxation scheme can declare income at a prescribed rate and, in turn, is relieved from tedious job of maintenance of books of account and also from getting the accounts audited.
For small taxpayers the Income-tax Act has framed three types of presumptive taxation schemes for different businesses as given below:
1) Presumptive taxation scheme under Section 44AD for Businesses other than Business of plying, hiring or leasing of goods carriages referred to in section 44AE.
2) Presumptive taxation scheme under Section 44ADA for Specified Professions.
3) Presumptive taxation scheme under Section 44AE taxpayers engaged in the business of plying, hiring or leasing of goods carriages.
Presumptive Taxation Scheme under Section 44ADA
A person resident in India engaged in following professions can take advantage of presumptive taxation scheme of section 44ADA:-
3) Engineering or architectural
5) Technical consultancy
6) Interior decoration
7) Any other profession as notified by CBDT
Note : The Finance Act, 2021 has amended provisions of section 44ADA to define eligible assessee. W.e.f. AY 2021-22, the benefit of section 44ADA is eligible only in case of assessee who is an:
a) Individual; and
b) Partnership firm other than a Limited Liability Partnership as defined under clause (n) of sub-section (1) of section 2 of Limited Liability Partnership Act, 2008.
Manner of computation of taxable income in case of a person adopting the presumptive taxation scheme of section 44ADA
In case of a person adopting the provisions of section 44ADA, income will be computed on presumptive basis, i.e. @ 50% of the total gross receipts of the profession. However such person can declare income higher than 50%.
In other words, in case of a person adopting the provisions of section 44ADA, income will not be computed in normal manner but will be computed @50% of the gross receipts.
The presumptive income computed @ 50% is the final income and no further expenses will be allowed.
Note : While computing income as per the provisions of section 44ADA, separate deduction on account of depreciation is not available. However, the written down value of any asset used in such business shall be calculated as if depreciation as per section 32 is claimed and has been actually allowed.
Maintenance of books of account if a person opts for presumptive taxation scheme of section 44ADA
In case of a person engaged in a specified profession as referred in section 44AA(1) and opts for presumptive taxation scheme of section 44ADA, the provision of section 44AA relating to maintenance of books of account will not apply. In other words, if a person opt for the provisions of section 44ADA and declares income @50% of the gross receipts, then he is not required to maintain the books of account in respect of specified profession.
Payment of advance tax in respect of income from professions covered under section 44ADA
Any person opting for the presumptive taxation scheme under section 44ADA is liable to pay whole amount of advance tax on or before 15th March of the previous year. If he fails to pay the advance tax by 15th March of previous year, he shall be liable to pay interest as per section 234C.
[As per section 208, every person whose estimated tax liability for the year is Rs. 10,000 or more, shall pay “Advance tax”.]
Provisions to be applied if a person does not opt for the presumptive taxation scheme of section 44ADA and declares his income from profession at lower rate (i.e. less than 50%)
A person can declare income at lower rate (i.e. less than 50%), however, if he does so, and his income exceeds the maximum amount which is not chargeable to tax, then he is required to maintain the books of account as per the provisions of section 44AA and has to get his accounts audited as per section 44AB.