Presumptive taxation scheme

The Centre has announced small businesses with a total turnover of up to Rs 2 crore will not be required to get their accounts audited if they opt for the presumptive taxation scheme. Section 44AB of the Income Tax Act makes it obligatory for every person carrying on business to get his/her accounts of any previous year audited if his/her total sales, turnover or gross receipts exceed Rs 1 crore.

"However, if an eligible person opts for presumptive taxation scheme as per section 44AD(1) of the Act, he shall not be required to get his accounts audited if the total turnover or gross receipts of the relevant previous year does not exceed Rs 2 crore. The move is expected to cause big relief to a large number of assesses in the MSME category, as they are relieved from tedious job of maintenance of books of account.

The presumptive taxation scheme of section 44AD can be adopted by following persons : 1) Resident Individual; 2) Resident Hindu Undivided Family; and 3) Resident Partnership Firm (not Limited Liability Partnership Firm). In other words, the scheme cannot be adopted by a non-resident and by any person other than an individual, a HUF or a partnership firm (not Limited Liability Partnership Firm).

Th Section 44AD is designed to give relief to small taxpayers engaged in any business, except the following businesses: Business of plying, hiring or leasing goods carriages referred to in sections 44AE; A person who is carrying on any agency business; A person who is earning income in the nature of commission or brokerage; and Any business whose total turnover or gross receipts exceeds two crore rupees.

Apart from above discussed businesses, a person carrying on profession as referred to in section 44AA(1) is not eligible for presumptive taxation scheme. If the taxpayer opts for the presumptive taxation scheme, he has to remain in that scheme for 5 years.

In case of a person who is opting for the presumptive taxation scheme of Section 44AD, the provisions of allowance/disallowances as provided under the Income-tax Law will not apply and income computed at the presumptive rate of 8% will be the final taxable income of the business covered under the presumptive taxation scheme and no further expenses will be allowed or disallowed.