Sections 44AD and 44ADA of the Income Tax Act, 1961, offer presumptive taxation schemes to simplify the tax compliance process for small businesses and professionals in India. These sections allow taxpayers to declare income at a prescribed rate and avoid maintaining detailed books of accounts. This tutorial will guide you on how to avail yourself of the benefits of these sections and claim them while filing your tax returns.
Section 44AD: Presumptive Taxation Scheme for Small Businesses
Eligibility Criteria
a. Eligible Assessees: Individuals, Hindu Undivided Families (HUFs), and partnership firms (except LLPs).
b. Eligible Businesses: Any business except those engaged in:
- Plying, hiring, or leasing goods carriages.
- Agency business.
- Businesses earn income from commission or brokerage.
c. Turnover Limit: Gross receipts or turnover of the business should not exceed ₹2 crore in a financial year.
Presumptive Income Calculation
- The presumptive income is calculated at 8% of the total turnover or gross receipts of the business.
- For digital transactions, the presumptive income is calculated at 6% of the turnover or gross receipts.
Benefits
- No need to maintain detailed books of accounts.
- No requirement for audit under Section 44AB.
- Simplified tax calculation and filing.
Section 44ADA: Presumptive Taxation Scheme for Professionals
Eligibility Criteria
a. Eligible Assessees: Resident individuals and partnership firms (except LLPs) engaged in professions specified under Section 44AA (1), such as:
- Legal.
- Medical.
- Engineering.
- Architectural.
- Accountancy.
- Technical consultancy.
- Interior decoration, etc.
b. Gross Receipts Limit: Gross receipts should not exceed ₹50 lakh in a financial year.
Presumptive Income Calculation
- The presumptive income is calculated at 50% of the total gross receipts.
Benefits
- No need to maintain detailed books of accounts.
- No requirement for audit under Section 44AB.
- Simplified tax calculation and filing.
How to Claim Benefits under Sections 44AD & 44ADA
Step-by-Step Process
a. Determine Eligibility: Ensure that your business or profession meets the eligibility criteria for Section 44AD or 44ADA.
b. Calculate Presumptive Income
- For Section 44AD: Calculate 8% (or 6% for digital transactions) of your turnover or gross receipts.
- For Section 44ADA: Calculate 50% of your gross receipts.
- Prepare ITR-4: Use the Income Tax Return (ITR) form applicable for presumptive taxation, i.e., ITR-4 (Sugam).
c. Fill in the Details
- Enter personal and business details.
- Enter the presumptive income calculated.
- Provide details of turnover/gross receipts.
- Enter other income sources, if any.
d. Claim Deductions and Exemptions: Fill in the details of any deductions under Chapter VI-A (like Section 80C, 80D, etc.) if applicable.
e. Pay Advance Tax: Ensure that you have paid the required advance tax. If not, pay the self-assessment tax before filing the return.
File the Return
- Upload the filled ITR-4 form on the Income Tax e-filing portal.
- Verify the return using any of the available methods (Aadhaar OTP, EVC, Net Banking, or sending a signed physical copy to CPC).
f. Keep Records: While detailed books of accounts are not required, maintain records of turnover/gross receipts and other relevant documents for reference.
Tips and Considerations
a. Consistency: Once you opt for the presumptive taxation scheme, you must continue using it for at least five consecutive years. If you opt out, you cannot avail of the scheme for the next five years.
b. Advance Tax: Even under presumptive taxation, advance tax payments are required. Pay 100% of the advance tax by 15th March of the financial year.
c. Accurate Reporting: Ensure accurate reporting of turnover and gross receipts to avoid penalties and scrutiny.
Conclusion
Sections 44AD and 44ADA provide a simplified and efficient way for small businesses and professionals to manage their tax compliance. By understanding the eligibility criteria, calculating presumptive income, and following the correct process for filing returns, taxpayers can significantly reduce their compliance burden while ensuring they meet their tax obligations.