Presumptive Taxation

Sections 44AD, 44AE, and 44ADA cover special provisions of computing profits on a presumptive basis.

Conditions and manner of computation common to all three sections are given at the end after specific provisions applying to each section.

A] Section 44AD – Presumptive Computation of Profits for taxation for Business

1] Applies to

Any eligible assessee engaged in an eligible business. Eligible assessee is defined as an individual, HUF, resident partnership firm, but excludes an LLP under LLP Act 2008 and any assessee who has claimed a deduction under sections 10A, 10AA, 10B, 10BA or heading C of chapter VIA (Sections 80-IA, 80-IB, etc.)

An eligible business means any business other than the business of plying, hiring or leasing of goods carriage as given in section 44AE and whose turnover/gross receipt in the previous year does not exceed ₹ 2,00,00,000. (w.e.f. AY 2017-18).

2] Deemed Income

An eligible business availing the benefit of this section can choose to adopt normal provisions of the Act in any year. In such a case it will not be allowed to claim the benefit under this Section for 5 subsequent assessments years, following the year in which it opts out. (Provision applicable w.e.f. AY 2017-18). In such an event it is mandatory for the assessee to maintain books u/s. 44AA and get them audited u/s. 44AB if his income exceeds threshold of non-chargeable income

Provisions of Chapter XVII C relating to Advance Payment of taxes will not apply to the eligible assessee in respect of eligible business only. The benefit of this section cannot be availed by assessee having income in the nature of commission or brokerage or agency business or a person carrying on any profession referred to in Section 44AA(1). However such assessees are now required to pay advance tax on or before 15th March in one instalment. Accordingly an exception is carved out from Section 234C to cover such cases of advance tax payments.

Refer ‘A] Conditions’ and ‘B] Computation’ below.

B] Section 44AE – Business of plying, leasing or hiring goods carriages

1] Applies to

Any person engaged in the business of plying, leasing or hiring of trucks if he owns not more than 10 goods carriages at any time during the previous year including those taken on hire purchase or on instalments. This scheme does not apply to those who operate trucks on hire without owning them (Circular 684, dated 10-6-1994).

2] Deemed Income

Presumptive amount of profit and gains for all types of goods carriages (w.e.f. AY 2019-20 excluding heavy goods vehicle) shall be higher of ₹ 7,500 per month or part of a month for which each goods carriage is owned by the taxpayer or an amount actually earned from such vehicle.

W.e.f. AY 2019-20, in addition to the above, presumptive amount for heavy goods vehicle (being goods vehicle with gross vehicle weight exceeding 12,000 kg.) shall be higher of ₹ 1,000 per ton of gross vehicle weight or unladen weight for month or part of a month for which the heavy goods vehicle is owned by the taxpayer or an amount actually earned from such vehicle.

In the case of a firm, the deduction in respect of salary and interest to partners u/s. 40(b) shall be deemed to have been allowed.

Refer to ‘A] Conditions’ and ‘B] Computation’ below.

C] Section 44ADA - Presumptive Computation of Profits from profession for taxation

(Applicable from AY 2017-18)

1] Applies to

Every resident individual, HUF or firm who is engaged in legal, medical, engineering, architectural or accounting profession, technical consultancy, interior decoration, film artist, authorised representative, company secretary, profession of Information Technology or any other profession as notified, having gross receipts of ₹ 50,00,000 or less.

2] Deemed Income

50% of the gross receipts of the assessee on account of such business or any higher amount voluntarily declared by him shall be deemed to be his income chargeable to tax.

3] Exception of payment of advance tax in one instalment on or before 15th March in one instalment as in the case of eligible business u/s. 44AD is not provided for. Thus by implication, advance tax provisions will be applicable.

Common Conditions and Computation methods for Sections 44AD, 44AE, and 44ADA

A] Conditions

All deductions u/ss. 30 to 38 including depreciation deemed to be allowed. No further deduction allowed under those sections.

The written down value of asset used in the business will be computed as if depreciation, as applicable, was allowed.

It will be assumed that disallowances if any u/ss. 40, 40A and 43B were considered by calculating the income estimated in 2] above. In the case of firms, no separate deduction for Interest and Remuneration to partners which was hitherto permissible, will not be allowed from AY 2017-18. (Except in case of S. 44ADA and 44E)

In respect of this business the assessee is not required to maintain books of account as per the provisions of s. 44AA.

The assessee is not required to get the books of account audited u/s. 44AB in respect of the above business.

If the assessee wants to declare lower income than the deemed profits as calculated above, he will have to maintain the books of account as per section 44AA and get the accounts audited as per s. 44AB irrespective of turnover, and also if his total income exceeds basic exemption limit.

B] Computation

The income calculated above shall be aggregated with income from any other business or other heads of income under the other provisions of the Income-tax Act.

The brought forward business losses and other losses will be deducted.

All deductions u/ss. 80CCC to 80U shall be allowed.

NOTE

The profit and loss from related businesses covered by sections 44B, 44BB, 44BBA, 44BBB, namely shipping business in case of non-residents, business of exploration, etc. of mineral oils, operation of aircraft in case of non-residents, foreign companies engaged in the business of civil construction, etc., in certain turnkey projects are not covered here as they have lower relevance and usage.

In respect of losses arising on ‘futures’ and ‘options’ which are claimed as business losses (non-speculative) and claimed as set-off against other income (other than salary), one needs to get the tax audit done. This view is taken by CPC at the time of processing of returns and CPC has not allowed such losses in absence of tax audit since returned income/loss is less than 8% of the gross receipts/turnover.

Same applies in case of speculation losses though not allowed to be set-off against other incomes and are required to be carried forward.