Meaning of presumptive taxation scheme

As per sections 44AA of the Income-tax Act, 1961, every person who is engaged in business or profession is required to maintain regular books of account under certain circumstances.

Income-tax Act has framed the presumptive taxation scheme under sections 44AD, sections 44ADA, sections 44AE., Section 44BB and Section 44BBB, to give relief to small taxpayers from the tough job of maintaining books of accounts.

By adopting the presumptive taxation scheme a person can declare income at a prescribed rate and he is not required to maintain of books of account.

The Income-tax Act, 1961 has framed presumptive taxation schemes, as given below, subject to certain conditions in each scheme:

Section 44AD:  Computation of income on estimated basis in the case of taxpayers engaged in certain business. In this scheme a resident individual, resident Hindu undivided family or resident partnership firm are eligible but a limited liability firm (LLP) is not eligible.

Section 44ADA:  Computation of professional income on estimated basis for assessee being a resident in India and engaged in a profession referred to in section 44AA(1).

Section 44AE: Computation of income on estimated basis in the case of taxpayers engaged in the business of plying, leasing or hiring goods carriages.  In this scheme an Individual, HUF, AOP, BOI, Firm, Company, Co-operative society or any other person may be resident or non-resident are eligible.

Section 44B: Taxation of shipping profits derived by a person being a non-resident in India.

Section 44BB:  Computation of taxable income of a person being a non-resident (may be an India citizen or a foreign citizen) from activities connected with exploration of mineral oils.

Section 44BBA:  Computation of income in respect of foreign airlines.

Section 44BBB:  Computation of profits and gains of foreign companies engaged in the business of civil construction.

Eligible to take advantage of the presumptive taxation scheme of section 44ADA

The presumptive taxation scheme of sections 44ADA can be adopted by a person resident in India, carrying on specified profession whose gross receipts do not exceed fifty lakh rupees in a financial year. Following professions are specified profession:

1) Legal

2) Medical

3) Engineering or architectural

4) Accountancy

5) Technical consultancy

6) Interior decoration

7) Any other profession as notified by CBDT

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 sections 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%.

A person who adopts the presumptive taxation scheme is deemed to have claimed all deduction of expenses. Any further claim of deduction is not allowed after declaring profit @ 50%.

However the assessee can claim deduction under chapter VI-A

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 sections 44AA and has to get his accounts audited as per sections 44AB.

There is no concession as regards payment of advance tax in case of a person who is adopting the presumptive taxation scheme of section 44ADA and, hence, he will be liable to pay advance tax even if he adopts the presumptive taxation scheme of section 44ADA.

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