Introduction to Presumptive Income:
Presumptive taxation allows taxpayers to calculate and pay taxes based on a presumed income, rather than having to maintain detailed accounts of expenses and revenues. This system simplifies tax filing, as you pay tax on a percentage of your gross receipts or turnover, without the need to calculate actual income after deducting expenses.
Section 44AD
Section 44AD was introduced to simplify tax compliance for small businesses with a turnover of less than ₹2 crores, which was amended to ₹3 crores in the Budget 2023, provided that at least 95% of the receipts are through digital (non-cash) modes. This section relieves eligible taxpayers from maintaining detailed books of accounts.
Eligible taxpayers can declare their net income as 8% of the turnover for cash transactions. For digital transactions, the net income is presumed to be 6% of the total turnover, making tax filing easier for businesses that mostly operate through non-cash modes.
To qualify for the ₹3 crore turnover limit, cash receipts should not exceed 5% of the total turnover.
Example:
- Turnover from Other Modes (Cash): ₹1,50,00,000
- Turnover from Banking Channels: ₹1,00,00,000
- Total Turnover (Cash + Banking): ₹2,50,00,000
- Maximum allowable Cash Turnover (5% of total turnover): ₹2,50,00,000 * 5% = ₹12,50,000
Thus, the total gross turnover should not exceed ₹3 crores for eligibility under Section 44AD.
Section 44ADA
Section 44ADA is a special provision for calculating presumptive income for small professionals. It extends the presumptive taxation scheme, previously available only to small businesses, to specified professionals. This allows certain professionals to pay tax on a deemed percentage of their receipts, without having to maintain detailed accounts.
Eligibility for Section 44ADA:
Professionals, such as doctors, lawyers, architects, engineers, accountants, or other specified professionals, with annual gross receipts less than ₹75 lakh, can opt for this scheme.
Under Section 44ADA, the presumptive income is fixed at 50% of the gross receipts. This eliminates the need to maintain detailed accounting records and simplifies the tax filing process for eligible professionals.
To qualify for the ₹75 lakh turnover limit, cash receipts should not exceed 5% of the total receipts.
Example:
- Receipts via Banking Channels: ₹40,00,000
- Receipts via Other Modes (Cash): ₹30,00,000
- Total Receipts (Banking + Cash): ₹70,00,000
- Maximum allowable Cash Receipts (5% of total receipts): ₹70,00,000 * 5% = ₹3,50,000
Thus, the total gross receipts should not exceed ₹75 lakh to be eligible under Section 44ADA.
Section 44AE
Section 44AE is a presumptive taxation scheme for individuals, Hindu Undivided Families (HUFs), and partnership firms (excluding LLPs) engaged in the transportation of goods. This provision simplifies tax calculations by establishing a fixed income per vehicle, based on the type of vehicle used for transport.
Eligibility for Section 44AE:
The scheme applies to transport businesses involved in the leasing, hiring, or owning of goods carriages. Taxpayers under this section declare a fixed profit for each vehicle, which is treated as their taxable income.
Deemed Profit Calculation:
- For light vehicles: Presumed profit is ₹7,500 per month per vehicle.
- For heavy vehicles: Presumed profit is calculated as ₹1,000 per ton of gross vehicle weight per month.
This simplification helps transport businesses avoid the need for complex bookkeeping, making tax compliance more straightforward.
By utilizing these sections, small taxpayers and professionals can significantly reduce the burden of maintaining extensive books of accounts while simplifying their tax filing processes through presumptive taxation. Each section is designed to cater to specific groups, ensuring that tax compliance is both easy and efficient for eligible individuals and businesses.