Presumptive Income means income defined as per presumptive rates under Indian Income Tax Act, 1961 . It means You don’t have to calculate business income under normal provision. Under normal provision, one has to first prepare a Profit and Loss account as per applicable accounting standard and based on Book profit , he/she may have to deduct/add expense and income as per Income Tax provision in order to derive Taxable income.
This is a facility provided by the Income Tax department for small businessess so that they don’t have to maintain books of account .
Following Businesses are covered under presumptive taxation :
All Resident Taxpayers – Presumptive Income :
Section 44AD:
This section covers all small business with total Turnover or Gross Receipts upto Rs. 2 crore except the business covered under section 44AE (refer Point 3 below). Presumptive income is assumed as 6% of Total Turnover or Gross Receipts in case of other than cash transactions . In case of Case transaction, it is presumed as 8% . For example , Business is having turnover of Rs. 50 Lakhs and they have achieved this turnover with non cash transaction (Banking Channel like RTGS/NEFT etc. ) , presumptive income is assumed @ 6% of this turnover i.e. Rs. 3 Lakhs. He/She has to pay Income Tax on this taxable Income
Section 44ADA:
This sector covers resident tax payers who engaged in notified profession u/s 44AA(1) and total Gross receipts upto Rs. 50 Lakhs . 50% of Gross receipts is presumed as Income so need to pay income tax on 50% amount only. Section 44AA. (1) defines profession as Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette . So if you are Doctor and your annual receipt is Rs.40 Lakhs, presumptive income is Rs. 20 Lakhs . You have to pay income tax on Rs.20 Lakhs as per applicable tax rate in your case .
Section 44AE:
This section is applicable in case an owner of goods carriages who earn income from plying, hire or leasing of such goods carriages and does not own more than 10 goods vehicles at any time during the previous year. In case of Heavy Goods Vehicle, Presumptive income is considered as Rs. 1,000 per ton of gross vehicle weight . In case of other than Heavy Goods Vehicle, Rs.7500 for every month or Part thereof is considered as presumptive Income .
For Non Resident Tax Payers – Presumptive Income
Section 44B & Section 172 :
Eligible business to avail benefit of this section is Shipping business . Presumptive Income is assumed @ 7.5% of Gross Receipts .
Section 44BB :
Eligible business to avail benefit of this section is Exploration of Mineral Oils. Presumptive Income is assumed @ 10 % of Gross Receipts .
Section 44BBA :
Taxpayers who are involved in operation of Aircraft are eligible to avail benefit of this section . Presumptive Income is assumed @ 5 % of Gross Receipts.
Section 44BBB:
Taxpayers who are involved in Turnkey Power Projects are eligible to avail benefit under this section so anyone they have to pay tax on presumptive income. Presumptive Income is assumed @ 10 % of Gross Receipts.
FAQs
Can I claim deduction over and above the limit ?
No , once you take option under presumptive scheme, it is assumed that all the deduction /expenses including depreciation shall be deemed to have been allowed to the taxpayer .
Can I declare profits less than the specified percentage ?
Yes , Taxpayers can claim lower profits but in that case they have to keep & maintain specified books of accounts and also get their books of accounts audited under section 44AB of Income Tax Act,1961.
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