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July 4, 2020

Know How Business can show 6% Profit and File Income Tax Returns without Books of Accounts

by Rubina Dsouza in Income Tax

Know How Business can show 6% Profit and File Income Tax Returns without Books of Accounts

Introduction

The Income Tax Act has provided a number of benefits for small taxpayers from the tedious job of maintenance of books of account and from getting the accounts audited. One such benefit is the availment of Presumptive Taxation Scheme under Sections 44AD, 44ADA and 44AE where a person adopting the presumptive taxation scheme can declare income at a prescribed rate and, in turn, is relieved from maintenance of books of account and also from getting the accounts audited.

Section 44AD – Special provision for computing profits and gains of business on presumptive basis

What benefit is available under Section 44AD?

In the case of an eligible assessee engaged in an eligible business, a sum equal to 8% of the total turnover or gross receipts of the assessee in the previous year on account of such business shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”

Is any benefit available if turnover is received by an account payee bank draft?

Presumptive income shall be calculated at rate of 6% in respect of total turnover or gross receipts which is received by an account payee cheque or draft or use of electronic clearing system or through such other electronic mode as may be prescribed during the previous year or before the due date specified in section 139(1) in respect of that previous year.

Can Deductions under Sections 30 to 38 be claimed if one opts for presumptive taxation scheme?

Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of section 44AD, shall be deemed to have been already given full effect to. No further deduction under those sections shall be allowed.

What do you mean by eligible business?

“Eligible business” means:-

  1. any business except the business of plying, hiring or leasing goods carriages referred to in section 44AE; and
  2. whose total turnover or gross receipts in the previous year does not exceed Rs 2 crore

Which assessee is eligible to avail this benefit?

“Eligible assessee” means:

  1. an individual, Hindu undivided family or a partnership firm, who is a resident, but not a limited liability partnership firm as defined under section 2(1)(n) of the Limited Liability Partnership Act, 2008 and
  2. who has not claimed deduction under any of the sections 10A, 10AA, 10B, 10BA or deduction under any provisions of Chapter VIA under the heading C. – Deductions in respect of certain incomes” in the relevant assessment year;

Who is not eligible to avail the benefit of Section 44AD?

Section 44AD shall not apply to:

  1. a person carrying on profession as referred to in section 44AA(1)
  2. a person earning income in the nature of commission or brokerage
  3. a person carrying on any agency business.

Is a person opting for presumptive scheme required to maintain books of account as prescribed under section 44AA?

  1. Section 44AA deals with provisions relating to maintenance of books of account by a person engaged in business/profession.
  2. In case of a person engaged in a business and opting for the presumptive taxation scheme of section 44AD, the provisions of section 44AA relating to maintenance of books of account will not apply.

Basically, if a person adopts the provisions of section 44AD and declares income @ 6% or 8%  of the turnover, then he is not required to maintain the books of account as provided for under section 44AA in respect of business covered under the presumptive taxation scheme of section 44AD.

What are the consequences if a person opts out from the presumptive taxation scheme of section 44AD?

  1. If a person opts for presumptive taxation scheme then he is also require to follow the same scheme for next 5 years.
  2. If he failed to do so, then presumptive taxation scheme will not be available for him for next 5 years.
  3. Further, he is required to keep and maintain books of account and he is also liable for tax audit as per section 44AB from the AY in which he opts out from the presumptive taxation scheme. [If his total income exceeds maximum amount not chargeable to tax]

Section 44ADA – Special provision for computing profits and gains of profession on presumptive basis

What benefit is available under Section 44ADA?

In the case of an assessee, being a resident in India, who is engaged in a profession referred in section 44AA(1) and whose total gross receipts does not exceed Rs 50 lakh in a previous year, then 50% of the total gross receipts of the assessee in the previous year on account of such profession shall be deemed to be the profits and gains of such profession chargeable to tax under the head “Profits and gains of business or profession”.

Can Deductions under Sections 30 to 38 be claimed if one opts for presumptive taxation scheme?

Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of section 44ADA, shall be deemed to have been already given full effect to. No further deduction under those sections shall be allowed.

Is a person opting for presumptive scheme under Section 44ADA required to maintain books of account as prescribed under section 44AA?

  1. In case of a person engaged in a specified profession as referred in section 44AA(1) and opts for presumptive taxation scheme of section 44ADA, the provision of section 44AA relating to maintenance of books of account will not apply.
  2. Basically, if a person opts for the provisions of section 44ADA and declares income @50% of the gross receipts, then he is not required to maintain the books of account in respect of specified profession.

What provisions are applicable if a person does not opt for the presumptive taxation scheme of section 44ADA and declares his income from profession at lower rate (i.e. less than 50%)?

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

Section 44AE – Special provision for computing profits and gains of business of plying, hiring or leasing goods carriages

What benefit is available under Section 44AE?

In case of an assessee, who owns maximum 10 goods carriages at any time during the previous year and who is engaged in the business of plying, hiring or leasing such goods carriages, the income of such business chargeable to tax under the head “Profits and gains of business or profession” shall be deemed to be the aggregate of the profits and gains, from all the goods carriages owned by him in the previous year.

What do you mean by profits and gains from all the goods carriages?

Carriage TypeProfit & gains from goods carriages
Heavy goods vehicleRs 1,000 per ton of gross vehicle weight for every month or part of a month during which the heavy goods vehicle is owned by assessee
Other goods vehicleRs. 7,500 for every month or part of a month during which the goods carriage is owned by assessee

What do you mean by heavy goods vehicle?

Heavy goods vehicle means goods carriage vehicle the gross vehicle weight of which exceeds 12,000 kilograms.

Can Deductions under Sections 30 to 38 be claimed if one opts for presumptive taxation scheme?

Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of section 44AE, shall be deemed to have been already given full effect to. No further deduction under those sections shall be allowed.

Are carriages taken on hire be considered for the purposes of this section?

Assessee who is in possession of a goods carriage, whether taken on hire purchase or on instalments and for which the whole or part of the amount payable is still due, shall be deemed to be the owner of such goods carriage.

Is any deduction available if income is computed as per Section 44AE?

If the assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under section 44AE(1) subject to the conditions and limits specified in section 40(b).

Is there any requirement to maintain books of account as prescribed under section 44AA?

  1. In case of a person opting for the presumptive taxation scheme of section 44AE, the provisions of section 44AA relating to maintenance of books of account will not apply.
  2. Basically, if a person adopts the provisions of section 44AE and declares his income at the rate of Rs. 7,500 per goods vehicle per month, then he is not required to maintain the books of account as provided for under section 44AA in respect of business covered under the presumptive taxation scheme of section 44AE.

What provisions are applicable if a person does not opt for the presumptive taxation scheme of section 44AE and declares income at a lower rate, i.e., at less than Rs. 1,000 per ton or Rs. 7,500 per goods vehicle per month?

A person can declare his income at lower rate (i.e., at less than Rs. 1,000 per ton or Rs. 7,500 per goods vehicle per month). However, if he does so, then he is required to maintain the books of account as per the provisions of section 44AA and has to get his accounts audited under section 44AB.

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