Important Keyword: Advance Tax, Presumptive Tax, Section 44AD, Section 44ADA, Section 44AE.

What is Presumptive Taxation Scheme?

The presumptive taxation scheme, introduced by the Income Tax Act, 1961, offers relief to small taxpayers by simplifying the process of maintaining books of accounts and undergoing audits. It allows individuals, Hindu Undivided Families (HUFs), or partnership firms to declare income at a predetermined rate, eliminating the need for detailed bookkeeping and audits.

Here are the key presumptive taxation schemes available:

1. Section 44AD: This scheme is for small businesses. Taxpayers under this scheme can declare income at a prescribed rate, generally a percentage of their turnover, without the need for maintaining detailed books of accounts.
2. Section 44ADA: Designed for professionals, this scheme enables them to declare income at a predetermined rate, typically 50% of their gross receipts, sparing them from the burden of extensive bookkeeping and audits.
3. Section 44AE: Applicable to businesses involved in plying, hiring, or leasing goods carriages, this scheme allows taxpayers to declare income based on the number of vehicles they operate, simplifying their tax compliance requirements.

By availing these presumptive taxation schemes, small taxpayers can streamline their tax reporting processes and focus more on their core business activities.

The Presumptive Taxation Scheme provides relief to small taxpayers engaged in businesses by exempting them from maintaining detailed books of accounts.

Here’s a breakdown of the scheme for different types of taxpayers:

1. Presumptive Taxation Scheme for Business (Section 44AD):
   • Eligible Assessees: Resident individuals, Hindu Undivided Families (HUFs), and partnership firms (excluding Limited Liability Partnership firms).
   • Ineligibility: Non-Resident Indians (NRIs) and those claiming deductions under specified sections (e.g., Section 10A, 80HH).
   • Benefits: Exemption from maintaining books of accounts and tax audit under Section 44AB.
   • Turnover Limit: Gross receipts up to INR 2 crore (increased from INR 1 crore until FY 2015-16).
   • Calculation: Net income deemed at a specified rate (e.g., 8% of turnover for non-digital transactions).
2. Presumptive Taxation Scheme for Professions (Section 44ADA):
   • Eligible Assessees: Professionals in specified fields with gross receipts up to INR 50 lakhs.
   • Benefits: Similar to Section 44AD, exemption from maintaining books of accounts and tax audit.
   • Calculation: Net income deemed at 50% of gross receipts.
3. Presumptive Taxation Scheme Under Section 44AE:
   • Eligible Business: Business of plying, hiring, or leasing goods carriages.
   • Eligible Assessees: Individuals, HUFs, firms, companies, etc.
   • Characteristics:
     • Turnover Limit: Not applicable.
     • Net Income Calculation: Prescribed rate per month per vehicle (e.g., INR 7,500 per month per heavy goods vehicle).
     • Exemption from maintaining books of accounts and business expenses deduction.
     • Tax Return: Filed using Form ITR 4.

These schemes aim to simplify tax compliance for small taxpayers and reduce their administrative burden, enabling them to focus on their business activities.

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Official Income Tax Return filing website: https://incometaxindia.gov.in/