Presumptive Taxation Scheme under Section 44AD
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Presumptive Taxation Scheme under Section 44AD

Looking for growing the routes for the market but plunge by maintaining the balance sheet? Or a freelancer who has no time for maintaining the balance sheet? If the solution is yes then the burden for conserving the tax are often released and one doesn’t need to worry during the tax filing season.

What Is A Presumptive Taxation Scheme (PTS) Scheme?
The Presumptive Taxation Scheme, according to sections 44AA of the Income tax Act 1961, was launched for relieving the small businessman and the professionals from managing the book of accounts. At a prescribed rate they allow to declare the entire taxable earnings.

Businesses not included under presumptive taxation scheme
The scheme of section 44AD is formed to give relaxation to small taxpayers engaged in any business, except the following companies:

  • The business of wielding, hiring, or leasing goods carriages is specified in section 44AE.
  • Individual carrying an agency business.
  • Individual who is earning income like commission or brokerage

Apart from the above-discussed businesses, an individual carrying on profession as mentioned in section 44AA (1) isn’t eligible for a presumptive taxation scheme.

  • The person working as an insurance broker can’t select the Presumptive Taxation Scheme as they earn income on a commission basis.
  • Any person involved in any profession mentioned in Section 4AA (1) cannot take up the presumptive taxation scheme of section 44AD.
  • A person whose total turnover surpass Rs. 2,00,00,000 for the year cannot select the presumptive taxation scheme of section 44AD.

Features of Presumptive Tax Scheme for Businesses and Professionals
For Businesses Eligible for Section 44AD
Businesses as listed under 44AD within the above table can avail Presumptive Tax Scheme only their total turnover/gross receipts are but INR 2 crore. In that case,
Net Income is computed as presumptive basis @ 8% of the turnover/gross receipts in cash.
In case of digital receipts, it is computed @ 6% (from AY 2017-18 onwards). This profit are going to be considered because the income under ‘Profits and Gains of Business/Profession’ and counted as final taxable income.
Computation of income and presumption of rates of income under section 44AD

  • Under the scheme of presumptive taxation, the eligible taxpayer has got to compute his income on the idea of estimation. The presumptive income is calculated at the speed of 8% of the annual turnover or the gross receipts of the business of the last fiscal year .
  • However as per budget 2018,If the gross receipts or annual turnover is received through account payee cheque or draft or any device then the presumptive income are going to be calculated at the rate of 6% of the annual turnover of the last year. This is through with the aim of promoting digital transactions. This special provision of reducing existing rate of calculation of presumptive income is completed to encourage small businesses to simply accept the digital payments and become organized and use the electronic clearing systems by a bank.

What are taxable Profits and Gains?
As per the section 44AD an assessee who opted for presumptive taxation will compute his income as 8% of the total turnover or gross receipts of the last year. An amount above the previously computed amount as presumptive income claimed by an assessee shall be termed as gains and profits of the business that’s chargeable to tax under the head “Profits and gains of business or profession”.