Presumptive Taxation Scheme Under Section 44AD, 44ADA, 44AE
Income Tax Act

Description of taxation scheme

According to the Income-tax Act, a person working in a business or technical field is required to keep standard account books and, in addition, must have his or her accounts checked. To provide assistance to smallholder taxpayers in this tedious task, the Income-tax Act has developed a system of presumptive under estimates under sections 44AD, 44ADA and 44AE.

A person who accepts an exaggerated tax system can declare income at the prescribed rate and, in turn, is relieved of the tedious task of keeping accounts and checking accounts.

Description of taxation scheme

For smallholder taxpayers the Income-tax Act has introduced two tax estimates as provided below:

1) The presumptive tax system of section 44AD.

2) Section 44ADA guessing taxation system.

3) Section 44AE tax guessing system.

Presumptive Taxation Scheme Section 44AD

For whom is the Presumptive tax scheme of section 44AD intended?

The section 44AD guessing tax system is designed to assist small taxpayers engaged in any business (other than the pedestrian, rental or rental goods vehicles referred to in section 44AE).

The Section 44AD tax guessing system may be approved by the following persons:

1) Individual Resident

2) The Indivisible Hindu Family

3) Community Partnership Firm (not Firm Liability Partnership Firm)

In other words, this plan cannot be accepted by a non-resident and by a person other than a person, HUF or a co-operative (not a Free Liability Partnership Firm).

This process will not be accepted by the person who has lodged a claim in respect of a deduction under section 10A / 10AA / 10B / 10BA or under section 80HH to 80RRB in the relevant year.

Uncovered businesses under the 44AD Presumptive tax scheme

The section 44AD scheme is designed to assist small taxpayers doing any business, with the exception of the following businesses:

> Business on foot, hire or rent a wagon referred to in section 44AE.

> A person who runs any agency business.

> A person who earns money in the form of commission or trade

With the exception of the businesses mentioned above, a person performing professional work as contemplated in section 44AA (1) is not eligible for tax purposes.

The insurance agent cannot use the presumptive system of section 44AD

A person earning money in the form of commission or trade may not accept a tax scheme in section 44AD. Insurance agents receive money in the form of a commission and, therefore, cannot use the presumptive of the section 44AD tax plan.

A person performing a technical function as defined under section 44AA (1) may not be able to use a presumptive system under section 44AD

A person performing any function as contemplated under section 44AA (1) may not accept a presumptive tax plan of section 44AD.

A person whose full income or gross receipts for the year exceeds Rs. 2,00,00,000 cannot accept the section 44AD tax plan

The presumptive of the Section 44AD tax assessment system may be preferred by eligible persons, provided that the total amount of profit or total revenue from the business does not exceed Rs. 2,00,00,000. In other words, if the total profit or total business receipt exceeds Rs. 2,00,00,000 and therefore section 44AD plan cannot be accepted.

The method of calculating the income of a taxable business under the general provisions of the Income Tax Act, that is, if a person does not use the section 44AD taxation system.

Generally, according to the Income-tax Act, the personal income charged business is calculated as follows:

Details Details

Income or total receipts from business XXXXX

Minimum: Expenses in respect of earning income (XXXXX)

Business Billing Revenue XXXXX

The method of calculating the income of a taxable business under the general provisions of the Income Tax Act, that is, if a person does not use the section 44AD taxation system.

For the purpose of depositing a business income charged in the above way, taxpayers must keep business account books. Revenue will be calculated on the basis of the information disclosed in the account books.

The method of calculating the income of a taxable business in the event of a person using a section 44AD tax guessing system

In the event that a person accepts the provisions of section 44AD, the income is calculated at the estimated 8% of the profit or capital receipts for the relevant annual business.

In order to encourage digital transactions and to encourage informal small businesses to accept digital payments, section 44AD is amended from the 2017-18 assessment year to provide that income will be calculated at a rate of 6% instead of 8% if the total profit / receipt is received by account payers. or a draft bank account payment or the use of an electronic debit order or other electronic means that may be determined in the previous year or before the due date for the payment of taxes under section 139 (1).

Therefore, in the event that a person accepts the provisions of section 44AD, the income will not be calculated in the normal way as previously described (i.e., Costs less than income) but will be calculated as @ 6% or 8%, as the case may be, total profit or receipt.

However, a person may voluntarily disclose his or her business income in excess of 8% or 6%, as the case may be, of a full profit or receipt.

Estimated revenue calculated according to the prescribed final revenue level and no additional costs will be allowed or disallowed

Under the general provision of the Income Tax Act, business income tax shall be calculated after approving the deduction in respect of expenses incurred in terms of the Income-tax Act and after excluding expenses that may be deducted in terms of the Income-tax Act.

In the event of a person opting for a section 44AD anticipation scheme, the grant / exemption provisions as provided for in the Income-tax Act will not apply and the proceeds calculated at a projected rate of 6% or 8% of the final business tax covered under the scheme taxation. In other words, the income calculated at the prescribed rate will be the final taxable income for the business covered under the tax plan and no costs will be allowed or disallowed.

While computing is recommended in terms of section 44AD, a separate reduction due to depreciation is not available. However, the recorded value of any asset used in that business will be calculated as if the depreciation in terms of section 32 is called and actually allowed.

There is no need to keep the books of account as prescribed under section 44AA

Section 44AA deals with the provisions relating to the keeping of accounts by a person doing business / work. Therefore, the person performing the business / profession must keep the accounts of his / her business / activity in accordance with the provisions of section 44AA.

If a person conducts business and chooses a predictable tax assessment system of section 44AD, the provisions of section 44AA relating to the keeping of account books will not apply. In other words, if a person accepts the provisions of section 44AD and claims income @ 6% or 8% (as may be) of the benefit, then he or she is not required to keep the books of account as provided for under section 44AA in respect of business covered under the sectional tax plan 44AD.

Payment of prepaid taxes in respect of business revenue compiled under section 44AD

Any person who chooses to speculate a tax estimate under section 44AD is obliged to pay the full amount of tax before or before 15 March of the previous year. If he fails to pay tax before 15 March last year, he will be liable to pay interest in terms of section 234C.

Note: Any tax paid in advance on or before 31 March will also be regarded as a prepayment paid during the financial year ending that day.

Conditions to be used if a person does not choose the 4400 tax guessing system and declare income at a lower rate, that is, less than 8%

A person may declare income at a lower rate (i.e., less than 6% or 8%), however, if he or she does so, and his or her income exceeds the maximum taxable income, then he or she is required to keep account books in accordance with the provisions of the section. 44AA and must have his accounts audited in accordance with section 44AB.

Consequences if a person exits the presumptive tax section of section 44AD

If one approves the presumptive tax system then one also needs to follow the same plan for the next five years. If he fails to do so, the speculative tax plan will not be available to him for the next five years. [For example, a person who feels that he or she will be taxed under section 44AD of AY 2018-19. AY 2019-20 and 2020-21 also provides income on the basis of a tax payment plan. However, in AY 2020-2 1, he did not opt ??for the arrogant tax scheme. In this case, they will not have to claim the benefit of the speculative tax plan for the next five AYs, i.e. AY 2022-23 to 2026-27.]

In addition, he is expected to keep and maintain the books of account and is responsible for tax audit in terms of section 44AB from AY where he chooses from the tax system. [If the amount of income exceeds the maximum taxable amount

Presumptive Tax Scheme Section 44ADA

For whom is the 44ADA guessing tax scheme for whom?

The Section 44ADA guessing tax system is designed to assist small taxpayers performing a specific task.

Qualified persons who can take advantage of the section 44ADA taxation system

An Indian resident who works in the following occupations may apply the section 44ADA think tank: -

1) Legal

2) Medical

3) Engineering or architectural arts

4) Accounting

5) Technical advice

6) Interior decoration

7) Any other activity notified by CBDT

Tax calculation method in the event of a person receiving a section 44ADA taxation system

In the event that a person accepts the provisions of section 44ADA, the income will be calculated by guessing, which means @ 50% of the total work receipt. However, such a person may claim that the income is more than 50%.

In other words, if a person accepts the provisions of section 44ADA, the income will not be calculated in the normal way but will be calculated as @ 50% of the total receipts.

Estimated income generated by @ 50% final income and no expenses will be allowed

The person who accepts the tax system is considered to have demanded all deductions. Any other deduction claim is not allowed after declaring profit @ 50%.

While computing is recommended in terms of section 44ADA, a separate deduction due to depreciation is not available. However, the recorded value of any asset used in that business will be calculated as if the depreciation in terms of section 32 is called and actually allowed.

Advance tax payment of levies in respect of income from activities compiled under section 44ADA

Any person who chooses a predictive tax plan under section 44ADA is liable to pay the full amount of tax payable before or before 1 March 5 of the previous year. If he fails to pay tax before 15 March last year, he will be liable to pay interest in terms of section 234C.

Retention of account books in case a person chooses a section 44ADA presumptive tax plan

In the event that a person performing a specified function as contemplated in section 44AA (1) and opens a presumptive tax system of section 44ADA, the provision of section 44AA relating to the keeping of account books will no longer apply. In other words, if a person chooses the provision of section 44ADA and declares income @ 50% of major receipts, then he or she is not required to keep account books in respect of the specified function.

Provisions to be used if a person does not opt ??out of the section 44ADA presumptive tax system and declare earnings in the sector at low prices (i.e. less than 50%)

A person may declare income at a lower rate (i.e. less than 50%), however, if he or she does so, and his or her income exceeds the maximum taxable amount, then he or she is required to keep account books in accordance with the provisions of section 44AA and must have his accounts audited in terms of section 44AB.

Presumptive Tax Scheme Section 44AE

Application of section 44AE tax consideration system

The Section 44AE scheme is designed to assist small taxpayers working in the business of renting, renting or renting goods vehicles.

Qualified taxpayer and eligible business for the purpose of section 44AE tax guessing scheme

The provision of section 44AE applies to everyone (i.e., individual, HUF, company, company, etc.).

The Section 44AE taxation system may be approved by a person who works in the business of driving, renting or leasing cargo carts and who does not own more than 10 goods vehicles at any time during the year.

A person who owns more than 10 goods vehicles may not be able to use the section 44AE tax guessing system

The Section 44AE taxation system may be approved by a person who works in the business of driving, renting or leasing cargo carts and who does not own more than 10 goods vehicles at any time during the year.

An important condition of the system is the prohibition against having more than 10 goods vehicles at any time during the year. Therefore, if a person has more than 10 car vehicles at any one time during the year, they will not be able to benefit from this program.

The method of calculating the income of a taxable business in the event of a person using a section 44AE tax system

In the event that a person decides to opt out of a taxation scheme under section 44AE, the income will be calculated at the estimated rate.

For heavy goods vehicles, revenue will be calculated at the rate of Rs. 1,000 per ton of heavy car weight per month or part of a month in which a heavy goods vehicle belongs to a taxpayer. In the event of non-heavy duty vehicles, the revenue will be calculated at an average of 7,500 per month or part of a month in which the goods vehicle is owned by the taxpayer. Half of the month will be considered the full moon.

Note 1: If the actual revenue is higher than the estimate, that is, it is higher than Rs. 1,000 / Rs. 7,500, then such a high fee can be announced.

Note 2: “Heavy Goods Vehicle” means any goods vehicle with a gross vehicle mass not exceeding 12,000 kilograms.

Estimated revenue is calculated at the rate of Rs. 1,000 per ton or Rs. 7,500 per car freight per month is the last revenue and no additional costs will be allowed or not allowed

Under the general provision of the Income Tax Act, business income tax shall be calculated after approving the deduction in respect of expenses incurred in terms of the Income-tax Act and after excluding expenses that may be deducted in terms of the Income-tax Act.

In the event of a person opting for a section 44AE tax assessment system, the grant / exemption provisions as provided for in the Income Tax Act, will not apply to the income calculated at the rate of Rs. 1,000 / Rs. 7,500 will be the final income. In other words, revenue is calculated at the rate of Rs. 1,000 / $. 7,500 per freight car per month will be the last income taxable business and no costs will be allowed or not allowed.

However, in the event that a taxpayer, a corporation, chooses a tax plan, based on the proceeds calculated at the assumption rate of Rs. 7,500 per freight car per month, may be deducted continuously due to salary and interest paid to partners (calculated in terms of the Income Tax Act)

While computing is recommended in terms of section 44AE, a separate deduction due to depreciation is not available, however, the recorded amount of any asset used in that business will be calculated as depreciation as stated in section 32 and is actually permitted.

There is no need to keep the books of account as prescribed under section 44AA

Section 44AA of the Income-tax Act, 1961 contains provisions relating to the keeping of accounts by a person doing business / work. Therefore, the person performing the business / profession must keep the accounts of his / her business / activity in accordance with the provisions of section 44AA.

There is no need to keep the books of account as prescribed under section 44AA

If a person chooses the section 44AE tax guessing system, the provisions of section 44AA relating to the keeping of account books will not apply. In other words, if a person accepts the provisions of section 44AE and declares his or her salary at a rate of Rs. 7,500 per goods vehicle per month, in which case he or she is not required to keep the books of account as provided for under section 44AA in respect of a business covered under the section 44AE taxation scheme.

Application of conditions relating to the payment of prepaid taxes

There is no pre-emptive tax exemption in the event of a person adopting a section 44AE predictive tax plan and, hence, he or she will be liable to pay an advance tax payment even if he or she accepts a section 44AE tax plan.

Conditions to be used if a person does not opt ??out of the 44AE presumptive tax plan and declare income at a lower rate, i.e., less than Rs. 1,000 per ton or Rs. 7,500 per freight car per month

A person can declare his or her minimum wage (i.e., less than Rs. 1,000 per ton or Rs. 7,500 per car per month). However, if he does so, he is required to keep the books of account in accordance with section 44AA and to have his accounts checked under section 44AB.

Presumptive Taxation Scheme Under Section 44AD, 44ADA, 44AE
Maniraj Anantham 3 December, 2022
Share this post