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Presumptive taxation scheme Section 44AD of Income Tax Act

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What is Presumptive tax?

Presumptive taxation is a new type of taxation introduced by the Income tax department Under section 44AD & 44AE , for giving some helping hand to small tax payers for eleminating or reducing expensive book keeping process. What is mandatory for an assessee who adopt presumptive taxation shall declare income at prescribed rate as per presumptive taxation rule 44AD& AAAE . In this post we are discussing about section 44AD.

As per Section 44AD an assessee can calculate  8% as his income on total turn over during the Financial Year. He can also calculate income more than 8% if he desireous to do  so J.Income tax shall be paid in accordance with Income Tax rate prescribed tme to time by the department.

Important Points to be noted of Section 44AD.

Presumptive Tax can be availed for business having turnover below 2 crore applicable from 1st April 2016. (The rate has been increased from  1 crore in Budget 2016) Other wise normal computation of tax is applicable.

No duduction, depreciation, expense can be claimed by presumtive tax payers except a conditional deduction of partners remmunaration and interest paid to partners under section 40(b).

Who are eligible for presumtive taxation scheme.

  • Individual
  • Hindu undevided family.
  • Partnership firm
  • In budget 2016 extended the scheme for professionals.Earlier till 2015-16 FY the scheme was denied for professionals.

Note :Non resident in any category cannot avail the benefit of the scheme.

Who are not elegible

  • Any non resident cannot eligible
  • Limited Liability Partnership
  • Any tax payer who has claimed a deduction under section .10 A,10AA,10B,10 BA,80HH,80RRB.
  • Domestic Company, Co-operative SocietyForeign Company.
  • Business dealing plying, hiring or leasing of goods carriages not elegible for this scheme.
  • Agency business cannot avail this scheme
  • A person earning income through brockerage and commision.

Calculation of Presumptive Tax

Presumptive tax is calculated as follows.

Before doing calculation cosider the follwoing point.

  1. The tax portion included in the sales  cannot be removed while considering Presumptive tax turnover like VAT,Excise ,Cesses.
  2. Tax payers running multiple business should be taken all business into account while calculating total turnover.
  3. The presumptive turnvover includes Delivery charges ,sales of usable empties and supplies.
  4. Fixed asset sale need not be included in the Presumptive
  5. Discount given need not added while calculating presumptive tax turnover.
  6. Advance or deposit received caanot be a part of a presumptive turnover.

Suppose the Total turn over of a  X partnership firm is  11500000 and his expense is  10000000

Taxable Turn over  Under Presumptive scheme is  : 11500000

And tax is calculated  @ 8 %  on  Turnover: 11500000 x 8 % = 920000

But cannot deduct his expense from total turnover.

Presumptive Tax payers should file ITR in ITR 4 S – Sugam.

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