Presumptive Taxation Scheme (PTS)

Contents
  1. Overview
  2. Features of Presumptive Tax under 44AD Scheme
  3. Basic Eligibility Criteria
  4. Excluded Entities
  5. Calculation of Taxable Income
  6. Excluded Responsibilities of the Taxpayers
  7. Frequently Asked Questions

Overview

The presumptive taxation scheme lets you calculate your tax on an estimated profit or income. To decrease the burden of tax rate and to give relief from time-consuming work to small tax assesses, the government of India has started this presumptive taxation scheme. It is covered under two sections: - Section 44D and 44EA of the Income-tax Act, 1961. Businessman adopts presumptive taxation scheme are exempt from getting their books of account audited. 

Features of Presumptive Tax under 44AD Scheme

According to the provision of a 44AD scheme, calculated presumptive income is regarded as the net income for the business covered under the presumptive scheme. Although assesses is not allowed to claim any deductions under Section 30 to 38 of the Income-tax Act. 

Basic Eligibility Criteria

The following individuals are eligible to avail of the presumptive taxation scheme under Section 44AD:-

  • Any person who has the resident of India,
  • Hindu Divided families who are residents of India,
  • A partnership firm that is a resident of India.

Any of the entities mentioned above this scheme given that they have claimed tax deductions for the relevant assessment year under the following sections:-

  • 10A,
  • 10AA,
  • 10B,
  • 10BA,
  • 80HH,
  • 80RRB.

The below individuals are not eligible to avail of the presumptive taxation scheme under Section 44AD

  • Any limited liability partnerships,
  • Non-residents,
  • Any person who is not an individual, Hindu divided family or a partnership firm.

Excluded Entities

The presumptive taxation scheme is covered under the Section 44AD to relieve the small taxpayers who handle the business, there are a few exceptions about the type of business the taxpayer may be engaged in that cannot take the benefit of the provisions under Section 44AD. These are as follows:-

  • Any business under section 44AE who includes the renting, hire and plying of goods carrier.
  • Any business related to agencies.
  • Individuals who get commission or income related to the brokerage.
  • Any individual who is included in the profession mentioned under section 44AA(1).
  • Insurance agents who receive their income as a commission.
  • Any person who earns a gross income of more than Rs. 1 lakh per year. 

Calculation of Taxable Income

  • Following the taxable income calculated at 8% as mentioned earlier, additional deductions will be allowed to be claimed on the following,
  • Remuneration paid to firm’s partners,
  • Interest received by the partners of the firm,
  • Deductions in the event of depreciation, although the value of assets owned by the business will be calculated based on assumed depreciation under Section 32 can’t be claimed.

Excluded Responsibilities of the Taxpayers

For taxpayers who take advantage of the presumptive taxation scheme of section 44AD, the following responsibilities are not needed to be carried out:-

  • For persons carrying on any business or profession and who have availed of the presumptive taxation scheme of Section 44AD, the maintenance of account ledgers or books will be applicable. Should the individual in question make a declaration of his or her income calculated at 8% of the total year turnover, then no account maintenance is needed as per the provisions highlighted under the presumptive taxation scheme.
  • Individuals availing of the presumptive taxation scheme of Section 44AD are not required to pay any tax in advance with regards to the income they receive from the business they are engaged in as mentioned in the provisions of section 44 AD.

Frequently Asked Questions

Q: What professions are eligible under section 44ADA?

As per section 4​4ADA, the professions that are eligible mentioned below:

  • Legal,
  • Medical,
  • Engineering,
  • Architectural profession,
  • Accountancy profession,
  • Technical consultancy,
  • Interior decoration, or
  • Any other notified profession.

You can learn all details about this scheme on Income Tax Department, Govt. of India website.

Q: Who can adopt presumptive taxation scheme?

The presumptive taxation scheme of section 44AD can be adopted by:

  • Resident Individual,
  • Resident Hindu Undivided Family,
  • Resident Partnership Firm (not Limited Liability Partnership).

Q: What is the mean of goods carriage for section 44AE?

Goods carriage means:

  • Any motor vehicle constructed or used or adapted,
  •  Any motor vehicle not so constructed or adapted.