Presumptive Taxation Scheme : Everything you need to know

What is Presumptive Taxation Scheme?

The presumptive taxation scheme was introduced by the Income Tax Act, 1961 to give relief to small taxpayers from the tedious job of maintaining books of account and from getting the accounts audited. Generally, a person who receives income from a business or profession maintains books of accounts and prepares a balance sheet to understand the financial position of their business or profession over the financial year.

Any individuals, HUF, or partnership firms who avail presumptive taxation scheme can declare income at a predefined rate. Thus, they need not go through the cumbersome task of maintaining books of accounts and audit. Following are the presumptive taxation schemes available to small taxpayers as per Income Tax Act:

  • Section 44AD for small businesses
  • Section 44ADA for professionals
  • And, Section 44AE for businesses engaged in plying, hiring or leasing of goods carriages

Presumptive Taxation Scheme for Business

This scheme is designed to give relief to small taxpayers engaged in any business from maintaining any books of accounts. However, it does not include the business of plying, hiring or leasing of goods carriages referred to in section 44AE. Further, the Income Tax Provisions for maintaining books of accounts under Section 44AA & Audit under Section 44AB will not apply. The following assessees can avail Presumptive taxation under section 44AD:

  • Resident Individual
  • HUF
  • Partnership Firm (not Limited Liability Partnership Firm)
ITR for Businesses u/s 44AD (Presumptive Scheme)
CA Assisted Income Tax Return filing plan for Individuals & HUFs with business income covered under Presumptive Taxation Scheme.
[Rated 4.8 stars by customers like you]
ITR for Businesses u/s 44AD (Presumptive Scheme)
CA Assisted Income Tax Return filing plan for Individuals & HUFs with business income covered under Presumptive Taxation Scheme.
[Rated 4.8 stars by customers like you]

Non-Resident Indians (NRI) can not avail of the benefit of this scheme. Also, a person who has made any claim towards deduction under section 10A/10AA/10B/10BA or under section 80HH to 80RRB in the relevant year is not eligible for this scheme.

Presumptive Taxation Scheme for Professions

Earlier professionals were kept out of presumptive taxation scheme. However, in budget 2016 the government has extended a presumptive taxation scheme to the professionals too. Hence, professionals can also opt for presumptive taxation under section 44ADA. This benefit is available from FY 2016-17 onwards.

ITR for Professions u/s 44ADA (Presumptive Scheme)
CA Assisted Income Tax Return filing plan for Individuals & HUFs with professional income covered under Presumptive Taxation Scheme.
[Rated 4.8 stars by customers like you]
ITR for Professions u/s 44ADA (Presumptive Scheme)
CA Assisted Income Tax Return filing plan for Individuals & HUFs with professional income covered under Presumptive Taxation Scheme.
[Rated 4.8 stars by customers like you]

An assessee in a specified profession having gross receipts up to INR 50 lacs, can opt for Presumptive Taxation under Section 44ADA. It saves them from the burden of maintaining books of accounts and go for tax audit as per Section 44AB.

Presumptive Taxation Scheme Under Section 44AE

The scheme of section 44AE is designed to give relief to small taxpayers engaged in the business of plying, hiring or leasing of goods carriages.

Eligible Business as per Section 44AE

  • A person who engages in the business of plying, hiring or leasing of goods carriages and who does not own more than 10 goods vehicles at any time during the year. Including carriages taken on hire purchase or no installments.
  • The provisions of section 44AE are applicable to every person (i.e., an individual, HUF, firm, company, etc.).

Characteristics of the Scheme u/s 44AE:

  • A taxpayer doesn’t have to maintain books of accounts under section 44AA.
  • Turnover from a business should not exceed INR 2 Crore (INR 1 Crore until FY 2015-16)
  • Net Income from a heavy goods vehicle will be taken as INR 7,500 per month for each vehicle
  • A taxpayer will not be able to claim any business expenses against the income.
  • Such a taxpayer should file Form ITR 4 on the Income Tax Website.

Round off part of a month to the next month. For instance, if you have owned a goods carriage for 7 months and 5 days, the net income shall be calculated as if the carriage was owned for 8 months.

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FAQs

Can a doctor opt for presumptive taxation scheme?

Yes. With effect from the Financial year 2016-17, any professional be it a doctor or a chartered accountant or a lawyer can opt for Presumptive taxation scheme u/s 44ADA. However, the only condition is that the income from such a profession should not exceed INR 50 lacs and profits will be taken as 50% of such professional receipts.

Which businesses are not eligible for presumptive taxation  scheme?

The scheme of section 44AD is designed to give relief to small taxpayers engaged in any business, except the following businesses:
1. Business of plying, hiring or leasing goods carriages as per Section 44AE.
2. A person who is carrying on any agency business.
3. A person who is earning income in the nature of commission or brokerage
4. Any business whose total turnover or gross receipts exceeds two crore rupees.​

Got Questions? Ask Away!

  1. Hi @Sankar123,

    Following are the benefits of filing under 44ADA:

    1. Taxpayer does not need to maintain books of accounts as per section 44AA,
    2. Taxpayer does not need to pay advance tax each quarter and can pay it in last installment i.e, by 15th march of the financial year,
    3. Tax audit will not be applicable if professional income is shown under 44ADA,
    4. Taxpayers can file ITR-4 which is simpler than ITR-3.

    However, as per section 44ADA, a taxpayer needs to show a minimum 50% of gross receipt or a higher amount claimed to have been earned as income while opting for 44ADA.

    Hope this helps

  2. Sec 44ada professional income it return filed person gross receipts rs:15 lacs and rebate sec80c lic premium pay amount rs:50000/- in f.y.20-21
    Question:
    Assess it return filed benefit for new or old scheme in it act.

  3. Hey @Sundaraiah_Kollipara, you can find out whether you would be benefitting using the old tax regime or the new one using the income tax calculator: