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Presumptive Income Tax Filing

Presumptive Income Tax scheme allows you to calculate your tax on an estimated income or profit. However, you should willingly declare income at a higher percentage of the total turnover.

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Presumptive Income Tax Filing

Presumptive Taxation System (PTS) means that income is measured on an expectation rather than on an actual basis. The real reason is when you subtract company costs from enterprise profits and pay balance tax. Let's understand further. The presumptive scheme could help any company or business which runs with a Rs 1 crore turnover or less than that. Presumptive tax means that the income of a person is assumed to be some amount irrespective of the real income.

What does a presumptive tax scheme mean?

Under section 44AA of the Income-Tax Act, 1961, a person engaged in a business or occupation is required under certain circumstances to maintain daily books of account. To relieve small taxpayers of this tedious work, the Income Tax Act has framed the presumptive tax scheme following the sections 44AD, sections 44ADA, sections 44AE., section 44BB, and section 44BBB.

An individual adopting the presumptive tax scheme can claim revenue at a specified rate and in turn be relieved from the difficult work of keeping account books.

The Income-Tax Act, 1961 has specified presumptive taxation schemes for small taxpayers as set out below:

  • Section 44AD
  • Section 44B
  • Section 44ADA
  • Section 44BB
  • Section 44BB
  • Section 44AE
  • Section 44BBB
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    Benefits of Presumptive Income Tax Scheme

  • It is not necessary to maintain the books of accounts
  • There is no requirement to audit the accounts
  • It is not needed to assess the advance taxes, since the advance tax is paid by 15th March of the previous year.
  • Note: Any amount paid by way of advance tax on or before the 31st day of March is also taken to be the advance tax that is paid during the financial year. The scheme follows the eligibility criteria.
  • Section 44ADA

    Section 44ADA extends to professionals the privilege of presumptive taxation, which was previously applicable only to particular firms. Section 44ADA requires professionals to follow the presumptive tax scheme provisions provided that their gross receipts for the financial year do not surpass the Rs.50 lakh. Below are the practitioners who may benefit under this section from the advantages of presumptive taxation:

  • Legal
  • Technical consultant
  • Engineering
  • Accountant
  • Medical
  • Interior business
  • Architectural profession
  • According to the new Income Tax Act, revenue is presumed to be a separate percentage of revenues for companies, practitioners, and transporters as follows:-

  • For businesses: The revenue is presumed to be 8% of sales.
  • For Professionals: The profit is calculated to be about 50% of the service value.
  • For Transporters: It is Rs. 7,500 per vehicle, per month, for small vehicles, and Rs.1000 per tonne for large vehicles per month.
  • Nowadays many people are taking advantage of this system and saving a lot of taxes.

    You will measure the tax on an expected income or benefit by using the presumptive taxation scheme (PTS). The scheme can be used in a financial year by companies with a total turnover of less than Rs.2 Crore and qualifying professionals with gross receipts of less than Rs.50 lakh. Those who follow the presumptive taxation scheme for the filing of their returns are not expected to keep account books.

    PTS may be followed by professionals who are governed or controlled by an organization or entity, such as interior designers, attorneys, architects, physicians, etc. For the mentioned ones, it is 50% of the gross earnings that will be regarded as income over the fiscal period and will be paid accordingly. A professional should voluntarily report the income at a rate greater than 50% of the total receipts required.

    Checklist eligibility criteria for Presumptive Income Tax Filing

  • Businesses which are having an annual turnover of less than Rs. 2 crores and proclaims an income which is above 8%.
  • Freelancers and other professionals having annual gross receipts of less than Rs. 50 lakh and deciding the income at 50% or above.
  • Also, other individuals having a casual income.
  • How to register ITR under presumptive scheme of taxation

    If in the assessment year 2018-19 you plan to apply for a presumptive taxation scheme (PTS), you will apply to file ITR under PTS for the next five years. Small businesses or professionals are frequently unable to maintain account books or financial reports or can not afford to employ accountants to do so, which may make the process of filing income tax returns (ITR) difficult for them and can even contribute to income non-disclosure and lower compliance with taxation. The Presumptive Taxation Scheme (PTS) is a very useful tool for these practitioners and companies. It allows you to measure the tax on an expected revenue or income.

    What will turn to PTS?

    Qualified residents, resident Hindu Undivided Families (HUFs), and resident partnership firms can adopt the scheme. Furthermore, only listed professionals, such as lawyers, physicians, engineers, architects, accountants, technical consultants, interior designers, and any other profession notified by CBDT, may opt for this scheme.

    Required documents for filing Presumptive Income Tax

  • Bank statements for the financial year
  • Income and Expense statements
  • Gross Receipts
  • Form 26AS Tax Credit Statement
  • Bank statement if the interest received is above Rs. 10,000/-
  • FAQs on Presumptive Income Tax Filing

    What companies do not apply for the presumptive taxation schemes?

    Section 44AD's scheme is intended to provide aid to small taxpayers involved in any industry, excluding the following:

    • An individual who earns income in either brokerage or commission-based firm.
    • Hiring or leasing of goods which is referred to as in Section 44AE.
    • Any company whose total revenue or gross receipts, which is more than Rs.2 crore.
    • An individual who carries on business with any organization.
    • A person who carries on his/her profession as referred to in section 44AA(1)

    What is the eligibility criteria to enjoy the advantages under Section 44AD of the Presumptive Taxation Scheme?

    The below-mentioned conditions which are to be satisfied to adopt the PTS which falls under Section 44AD of the I-T Act:

    • The annual revenue of the company or entity in the prior year must not exceed Rs. 2 crores.
    • The provisions of Section 44AD may be followed by any firm or any individual who has not declared a tax deduction under Section 10A, Section 10AA, Section 10B, Section 10BA during the particular assessment year. The same applies to persons or businesses who have not sought a deduction under Section 80HH to RRB 80.
    • Those laws can not be followed by individuals or businesses who/that are highly involved in the business of providing and recruiting carriages of goods.
    • No presumptive taxation schemes may be introduced by a company or individual assessee engaged in professional services in which profit is received in the form of a brokerage or commission.

    What are the income calculations based on, under Section 44AD?

    Qualifying assessees those who are prepared to follow the presumptive taxation scheme under Section 44AD shall measure their income based on an estimate. It is measured for the previous year for cumulative annual turnover or the gross receipts at the rate of 8%. Through its income tax return, Assessee may also report an income greater than the estimated income indicated under the scheme.

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