Presumptive taxation is a scheme provided by Income Tax where in the people are not required to maintain the books of accounts and they need to show a minimum rate of profit as mentioned in the section or a higher profit. There are different presumptive income section for different types of income which are as under:
1. 44AD: Business Income.
2. 44ADA: Professional Income.
3. 44AE: Income from business of plying, hiring or leasing goods carriages.
4. 44B: Income from shipping business in the case of non-residents.
5. 44BB: Income from business of exploration, etc., of mineral oils.
6. 44BBA: Income from business of operation of aircraft in the case of non-residents.
7. 44BBB: Income of foreign companies engaged in the business of civil construction, etc., in certain turnkey power projects.
From the above, the two most popular sections in this preventive taxation scheme is 44AD and 44ADA.
However most people are confused as to when 44AD or 44ADA will be applicable in their case. in this post we will try to discuss the various differences between these two sections.
Who are eligible for presumptive taxation:
Section 44AD: An individual, Hindu undivided family or a partnership firm, who is a resident, but not a limited liability partnership firm.
Section 44ADA: The applicability of assessee for section 44ADA is an assessee, being a resident in India, who is engaged in a profession referred to in sub-section (1) of section 44AA. Hence, there is no restriction on any assessee who is eligible for section 44ADA as per provision of law. However, if you go through the ITR you will come to know that restrictions are same as section 44AD and hence LLP and company cannot file return u/s 44ADA.
Now, let’s understand who are applicable for showing their profit or declaring the profit under 44AD and 44ADA.
Section 44AD: Section 44AD provides an exclusive definition where it excludes various professions or income sources other than which all the other businesses are included under 44ad which is as under:
(i) a person carrying on profession as referred to in sub-section (1) of section 44AA (i.e. person eligible for 44ADA);
(ii) a person earning income in the nature of commission or brokerage; or
(iii) a person carrying on any agency business.
Section 44ADA: Many people think that section 44ADA is applicable for all type of professionals or service providers in general however that’s not the case section 44ADA is applicable to some specific types of professionals list of which has been provided under section 44AA which is as under:
Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or film artist.
Other than the above professional no other people can show income under section 44ADA.
Thus, from the above it is clear that section 44AD has a wider applicability as compared to section 44ADA.
After the applicability is over, let’s see what is the minimum presumptive income under 44AD and 44ADA which one needs to disclose:
Before stating the presumptive income rate let’s first clear one thing that the section says that one needs to disclose the deemed profit or actual profit whichever is higher. Thus, if a person is earning higher profit he must disclose that.
Section 44AD: Under section 44AD one may disclose minimum profit of 8% of total turnover, receipts and in case all the turnover or receipts is received through account payee cheque, draft or electronic mode he may show minimum of 6% profit.
Section 44ADA: Under section 44ADA minimum profit would be 50% of total gross receipts.
Some other important points for presumptive taxation:
1. All deduction under section 30 to 38 shall be deemed to have been allowed.
2. The written down value of any asset used for the purposes of profession shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.
3. With regard to deduction of partner’s remuneration in case of partnership firm CLICK HERE.
4. Assessee can use ITR 4, 3, 5 as applicable. (If you need any assistance in filing your ITR CLICK HERE.
Thus, this are some of the important points related to presumptive taxation scheme under Income tax.