Income Tax Act 44AD, 44ADA, 44AE - GST Registration, GST cancellation, GST Return Filing

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Income Tax Act 44AD, 44ADA, 44AE

Presumptive Taxation Scheme

To give relief to small taxpayers, Income Tax Act framed the presumptive taxation scheme under section 44AD, section 44ADA & section 44AE.  A person adopting this scheme can declare income at a prescribed rate and relieved from maintain book of accounts.

Section 44AD: Presumptive Income Under Income Tax Act

The scheme of Section 44AD of Income Tax Act is designed to give relief to small taxpayers engaged in any business. His net income shall be considered 8% of his total receipts (6% in case of digital receipts). The presumptive taxation scheme u/s 44AD of Income Tax Act can be adopted by following persons:

  • Resident Individual
  • Resident Hindu undivided family
  • Resident Partnership Firm (except LLP)
Income Tax Act 44AD
(Income Tax Act 44AD)

Business not covered u/s 44AD

  • Business of Plying, hiring or leasing goods carriages referred in Section 44AE of Income Tax Act 
  • Professionals referred in section 44AA(1)
  • A person who is carrying on any agency business
  • A person who is earning income in the nature of commission or brokerage
  • Business with turnover or gross receipts* exceeds Rs. 2 crore for a financial year

*Receipts which do not form part of the turnover
  • Sale of Property, Plant and Machinery
  • Advance receipt from customers.
  • Any security Receipts
  • Interest income or other similar receipts

Notes
  • In case the Assessee is running more than one business, then the turnover of all businesses shall be clubbed to determine turnover
  • In case the Assessee is involved in both business and professional practice, then provisions of Section 44AD and 44ADA both are applicable
  • Assessee should not have claimed tax deduction  u/s 10A/10AA/10B/10BA/80HH to 80RRB in the relevant year.
  • An Assessee can claim tax deductions and avail benefits under Chapter VI-A (Section 80C to 80U) even if he is declaring income as per presumptive taxation scheme under Section 44AD of the Income Tax Act. 
  • if the Assessee is a partnership firm then deduction can be claimed for salary and interest paid to partners within the limit prescribed u/s 40B of the Income Tax Act.
  • Person opting for presumptive taxation scheme u/s 44AD can declare higher income than the deemed minimum income
  • If you opt this scheme then you are required to follow it for the next 5 years and in case, you fail to do so, then presumptive taxation scheme will not be available to you for the next 5 years. In this case, you will also be required to keep and maintain books of account and get your accounts audited
  • No audit would be required  in presumptive taxation scheme u/s 44AD  
  • No books of accounts to be maintained in presumptive taxation scheme u/s 44AD

Documents you should provide to the tax officer to prove the turnover u/s 44AD

  • Copies of invoices issued during the financial year
  • Copies of cash memo issued during the financial year
  • Copies of Purchase bill
  • Copies of Bank statement
  • Inventory details, if any maintained
  • Average G.P rate applicable to Particular business
  • Returns filed under GST laws

 

Section 44ADA: Presumptive Income under Income Tax Act


The scheme of  section 44ADA of Income Tax Act  is designed to give relief to small taxpayers engaged in any profession. His net income shall be considered 50% of his gross receipts. The presumptive taxation scheme u/s 44ADA of Income Tax Act can be adopted by following persons:
  • Resident Individual
  • Resident Hindu undivided family
  • Resident Partnership Firm (except LLP)

Eligible Professionals u/s 44ADA of Income Tax Act

Profession engaged in following areas are eligible u/s 44ADA of Income Tax Act:
  • Interior decorations 
  • Technical consultancy
  • Engineering & Architecture 
  • Accountant 
  • Legal Services
  • Medical
  • Any other profession specified by CBDT

Professions not covered u/s 44ADA of Income Tax Act

  • A person who is earning income in the nature of commission or brokerage
  • Business with turnover or gross receipts exceeds Rs. 50 Lakh for a financial year

* Receipts which do not form part of the turnover
  • Sale of Property, Plant and Machinery
  • Advance receipt from customers.
  • Any security Receipts
  • Interest income or other similar receipts

Notes
  • In case the Assessee is running more than one profession, then the turnover of all profession shall be clubbed to determine turnover
  • In case the Assessee is involved in both business and professional practice, then provisions of Section 44AD and 44ADA both are applicable
  • Assessee should not have claimed tax deduction  u/s 10A/10AA/10B/10BA/80HH to 80RRB in the relevant year. 
  • An Assessee can claim tax deductions and avail benefits under Chapter VI-A (Section 80C to 80U) even if he is declaring income as per presumptive taxation scheme under Section 44ADA of the Income Tax Act.
  • if the Assessee is a partnership firm then deduction can be claimed for salary and interest paid to partners within the limit prescribed u/s 40B of the Income Tax Act.
  • Person opting for presumptive taxation scheme u/s 44ADA  can declare higher income more than 50%
  • No audit would be required  in presumptive taxation scheme u/s 44ADA
  • No books of accounts to be maintained in presumptive taxation scheme u/s 44ADA

 

Documents you should provide toe the tax officer to prove turnover u/s 44ADA

  • Copies of invoices issued during the financial year
  • Copies of cash memo issued during the financial year
  • Copies of Bank statement
  • Average G.P rate applicable to Particular business
  • Returns filed under GST laws

Section 44AE: Presumptive Income under Income Tax Act

The scheme of  section 44AE of Income Tax Act   is designed to give relief to small taxpayers engaged in the business of plying, leasing or hiring goods carriages. His net income shall be considered as per below formula:

Light Goods Vehicle (Less than 12MT- Gross Weight Vehicle): Rs.7500/- per month per vehicle
Heavy Goods Vehicle (More than 12MT- Gross Weight Vehicle): Rs.1000/- per ton per vehicle per month

The presumptive taxation scheme u/s 44AE of Income Tax Act can be adopted by following persons:
  • Any class of taxpayer (i.e. Individual/ HUF/ Partnership Firm/ LLP/ Company)

Who are not eligible for presumptive taxation scheme u/s 44AE

  • Businesses have more than 10 good carriages

Notes
  • If the vehicle is not owned for the full month - then the period would be considered as full month
  • Assessee should not have claimed tax deduction  u/s 10A/10AA/10B/10BA/80HH to 80RRB in the relevant year. 
  • An Assessee can claim tax deductions and avail benefits under Chapter VI-A (Section 80C to 80U) even if he is declaring income as per presumptive taxation scheme under Section 44AE of the Income Tax Act.
  • if the Assessee is a partnership firm then deduction can be claimed for salary and interest paid to partners within the limit prescribed u/s 40B of the Income Tax Act.
  • Person opting for presumptive taxation scheme u/s 44AE  can declare higher income than the deemed minimum income
  • If you opt this scheme then you are required to follow it for the next 5 years and in case, you fail to do so, then presumptive taxation scheme will not be available to you for the next 5 years. In this case, you will also be required to keep and maintain books of account and get your accounts audited
  • No audit would be required  in presumptive taxation scheme u/s 44AE
  • No books of accounts to be maintained in presumptive taxation scheme u/s 44AE

Conclusion

Presumptive taxation scheme under Section 44AD/ 44ADA/ 44AE is a great benefit to small or medium sized taxpayers. This is because they do not have to do the tedious job of maintaining books of account and getting it audited under the Income Tax Act. This helps in saving the time as well as saves the taxpayers from high probability of errors.


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