Presumptive taxation | Section 44AD | Section 44ADA | Section 44AE

Updated: May 23, 2021

For reducing the income tax burden of small tax-payers presumptive tax Scheme was introduced by government.


The scheme of the presumptive taxation is notwithstanding the normal provisions of the head Business and Profession.


Presumptive Tax Scheme is framed under the following sections:


A) Section 44AD: Special provision for computing profits and gains of business on presumptive basis: Computation of income on estimated basis in the case of taxpayers [being a resident individual, resident Hindu undivided family or resident partnership firm (not being a limited liability firm] engaged in certain business subject to certain conditions.


B) Section 44ADA: Special provision for computing profits and gains of profession on presumptive basis: Computation of professional income on estimated basis for assessee being a resident in India and engaged in a profession referred to in section 44AA(1) subject to certain conditions.


C) Section 44AE: Special provision for computing profits and gains of business of plying, hiring or leasing goods carriages: Computation of income on estimated basis in the case of taxpayers (being an Individual, HUF, AOP, BOI, Firm, Company, Co-operative society or any other person may be resident or non-resident) engaged in the business of plying, leasing or hiring goods carriages, subject to certain conditions.


The above provisions are further explained in details as under:




Conditions that need to be met for opting presumptive taxation scheme under Section 44AD:


If the turnover is below the threshold of the presumptive tax sections and the Presumptive Scheme is not opted and books of accounts are audited to show lower taxable profits, then the Assessee could not opt for presumptive tax rates for continuous period of 5 years and hence the Assessee would be liable to get the books of accounts audited for such period.


Few Issues resolved by the judicial Pronouncements:


A) Sec 44AE:


(i) If the income claimed is less than the quantum prescribed in sub-section (2), maintenance of books u/s.44AA & audit u/s. 44AB required.

If the income claimed is less but books not maintained, or not audited – consequences? Can the income be enhanced - Can penalty be levied - Can both be done?

Shri Natthi Singh Versus Ito - 2018 (11) Tmi 634 - Itat Jaipur


(ii) Whether the assessee can choose this section only for few vehicles and for rest of other vehicles claim lower profits by maintaining accounts, etc?

CP. Kunhimohamed – 2004 (12) TMI 313 (ITAT Cochin)


(iii) Whether the section would apply even if the turnover crosses the limit of Rs.1 Crore

Anil Ramgopal Mali – 2009 (12) Tmi 583 (Itat Pune)


(iv) When ONLY one truck is owned and used for own business but occasionally let on hire (income being very mere) S.44AE applicable

Northern Services & Supply Co P Ltd – 2016 (10) TMI 222 ITAT KOLKATA


SOME OTHER ISSUES:


1. The section 44AD exempts the assessee from maintain the books of accounts.


However, it is ironical that for making bifurcation between the cash sales and digital sale one has to compulsory maintain the record of the books making the distinction between the cash sales and digital sales. There will be great difficulty for the person making the sales regularly on the credit basis as he has to maintain the books regularly and accordingly the very purpose of exempting the assessee from maintaining the books of account is defeated.


2. Whether the provisions of the section 40(a)(ia) is applicable in such cases.


The section starts with the non obsantate clause and therefore all the provisions of the section 28 to 44DA will not be applicable in such cases. (39 SOT 13 , 192 Taxman 264)


3 Whether the section 44AD is applicable where the assessee officer has rejected the books of account and turnover is higher than the limit of the 2 crores. (61 Taxman.com 14, 224 Taxman 358, 229 Taxman 357, 59 TTJ 723).


The above manner of computation of income on which the tax is levied and several legal compliances will change depending on the scheme opted for. Moreover, the taxpayer is free to decide whether he intends to opt for the Scheme of Presumptive Taxation or opt for the Scheme of Normal Taxation. The taxpayer can opt for any scheme as per his wish.

- Priyanka Sajnani – Article at Sunil Maloo & Co

www.sunilmaloo.com

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