PRESUMPTIVE TAXATION SCHEME FOR SMALL BUSINESS MAN UNDER SECTION 44AD FOR AY 2019-20

What is PRESUMPTIVE TAXATION SECHEME U/S 44AD

The Motto of Income Tax Act to provide the relief a person, who is engaged in business, to maintain the books of accounts and get his accounts audited. If a person opt the presumptive scheme he is not required to maintain the books of accounts and get his accounts audited.

Who can opt the presumptive scheme:

  • Resident Individual.
  • Resident HUF.
  • Resident Partnership Firm (Not included the LLP)
  • This scheme is not available for a person who has made any claim towards deductions under section 10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant year.

Business Covered Under Scheme:

All business covered under the presumptive scheme except the following business :

  1. Business of plying, hiring or leasing of goods carriages referred to in section 44AE.
  2. Agency Business
  3. Business of Commission or Brokerage.
  4. A Insurance Agent
  5. Any Income From Profession mentioned in Section 44AA(1)
  6. If the turnover of the business exceed Rs.2.00 Crore than not covered under scheme.

Minimum Rate of Profit

  • Minimum rate of profit is 8% of the turnover or gross receipts of the eligible business for the year.
  • In order to promote digital transactions, section 44AD is amended w.e.f. the assessment year 2017-18 to provide that Net Profit shall be computed at the rate of 6% instead of 8% if turnover/gross receipt is received by an account payee cheque or bank draft or use of ECS through a bank account during the previous year or before the due date of filing of return under section 139(1).
  • A person may voluntarily disclose his Net Profit or income at more than 8% or 6%, as the case may be, of turnover or gross receipt.

Books of Accounts

In this scheme it is not required to maintain the books of accounts as per Section 44AA if he declare the minimum profit at the 8% or 6% of gross turnover for eligible business.

Advance Tax   

  • In this scheme it is required to pay the advance tax on or before 15th March of the previous year.
  • If a person fail to pay the advance tax than he is liable to pay the interest U/s 234C.

If profit declare less than minimum profit

In this scheme if a person declared his income less than 8% or 6% than he is required to maintain the books of accounts as per provision of section 44AA and also required to get his accounts audited as per provisions of section 44AB of I.T.Act, 1961.

If a person opts out from the scheme of section 44AD

  • If a person opt the scheme than he will be continuous follow the scheme for next five years.
  • If he failed or opts out from the scheme than such scheme will not be available for him for next five years.
  • For example, if he opt the scheme as per Section 44AD for AY 2017-18,  AY 2018-19 and 2019-20 and he offers income on basis of presumptive taxation scheme. However, for AY 2020-21, he did not opt for presumptive taxation Scheme. In this case, he will not be eligible to claim benefit of scheme for next five AYs, i.e. from AY 2021-22 to 2025-26.
  • Assessee is required to keep and maintain books of account and he is also liable to get his accounts for tax audit as per section 44AB from the AY in which he opts out from the scheme. [If his total income exceeds maximum amount not chargeable to tax]

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