Goals and Eligibility Criteria
- To simplify the understanding of the tax system To ease the strain of compliance
- To help small business owners understand complex issues
- To achieve parity between small businessmen (as defined by Section 44AD) and small professionals.
- Engineer, Lawyer, Architect, Accountant, Medical Technologist, and Interior Business Consultant
- Other professions who have been notified include authorised agents, film artists, some sports related individuals, company secretaries, and information technology experts.
Awareness Regarding the Section
Benefits and Exceptions
- Section 44AA does not necessitate the keeping of books.
- Under Section 44AB, there is no duty to have your finances audited.
- The profession’s income is offered at a lower percentage than 50% of total receipts.
- The assessee’s total income exceeds the basic exemption.
1) What does the term “presumptive taxation” mean?
Under certain conditions, a person engaged in business is required to keep regular books of account under section 44AA of the Income-tax Act, 1961. The Income-tax Act has created the presumptive taxation plan under sections 44AD and 44AE to relieve small taxpayers from this laborious work.
An individual who uses the presumptive taxation scheme can declare income at a predetermined rate and so avoid the time-consuming task of keeping books of account.
2) Is it possible for an insurance agent to use Section 44AD’s presumptive taxation scheme?
A person who earns commission or brokerage income is not eligible to use section 44D’s presumptive taxation scheme. Because insurance agents receive money through commissions, they are unable to use section 44D’s presumptive taxation structure.
3) Is it possible for a person who practises a profession as defined by section 44AA(1) to use the presumptive taxation scheme of section 44AD?
A person who is engaged in any of the professions listed in section 44AA(1) is not eligible to use the section 44AD presumptive taxation scheme.
He can, however, choose the presumptive taxation plan under section 44ADA and declare 50% of his gross earnings as presumptive income. Only resident assessees with total gross earnings of professions of less than fifty lakh rupees are eligible for the Presumptive Scheme under section 44ADA.
4) Is it possible for a person whose total turnover or gross earnings for the year exceed Rs. 2,00,00,000 to use Section 44AD’s presumptive taxation scheme?
If the total turnover or gross earnings from the firm do not exceed the maximum provided under section 44AB, the eligible per sons might choose the presumptive taxation system of section 44AD (i.e., Rs. 2,00,00,000). In other words, if a business’s total sales or gross receipts exceed Rs. 2,00,00,000, the section 44AD plan cannot be used.
5) What is the procedure for calculating taxable business income under the standard provisions of the Income-tax Law, i.e., if a person does not use Section 44AD’s presumptive taxation scheme?
According to the Income-tax Law, every person’s taxable business income is computed as follows: For the purpose of computing taxable business income in the above manner, taxpayers must keep business books of account, and income will be computed based on the information revealed in the books of account.
6) What is the method for calculating taxable business income if a person uses Section 44AD’s presumptive taxation scheme?
If a person adopts the requirements of section 44AD, income will be determined on a presumptive basis, i.e., at 8% of the qualified business’s turnover or gross revenues for the year.
In other words, if a person adopts the requirements of section 44AD, income will be determined at 8% of turnover rather than the standard method stated in the previous FAQ (i.e., Turnover less Expense). If the real income is greater than 8%, a higher rate of income, i.e., more than 8%, can be stated.
7) Is a person obligated to pay advance tax on revenue from a business covered by section 44AD if he uses the presumptive taxation scheme of section 44AD?
Anyone who chooses the presumptive taxation plan under section 44AD must pay the entire amount of advance tax by March 15th of the previous year. If he does not pay the advance tax by the 15th of March of the preceding year, he is subject to interest under section 234C.
8)What happens if a person who is eligible for the section 44AD presumptive taxation scheme declares his income at a lower rate (i.e., less than 8%)?
A person can disclose income at a lower rate (i.e., less than 8%), but if he does and his income exceeds the maximum amount not subject to tax, he must keep books of account as required by section 44AA and have his accounts audited as required by section 44AB.
9)What is the method for calculating taxable income if a person uses Section 44ADA’s presumptive taxation scheme?
If a person follows the provisions of Section 44ADA, their income will be calculated on a presumptive basis, that is, at 50% of their entire gross receipts. However, such a person can disclose revenue that is greater than 50%.
In other words, if a person follows the provisions of Section 44ADA, his or her income will be calculated at 50% of gross receipts rather than the usual 50%.
10) Can a person that uses Section 44ADA’s presumptive taxation plan deduct any more expenses after declaring profit at 50% of gross receipts?
No, if you use the presumptive taxation plan, you are presumed to have claimed all of your expenses. After declaring profit at 50%, no additional deduction claims are allowed.