Presumptive Taxation Scheme for Business and Professionals

Presumptive Taxation Scheme for Business and Professionals


Maintaining books of accounts is a costly and time-consuming process for businesses and professionals. The government has introduced the presumptive taxation scheme to make tax compliance easier. Under the scheme, eligible business professionals can file returns at a prescribed rate without maintaining their books of accounts.

What is the Presumptive Taxation Scheme?

According to the IT Act, businesses and professionals must maintain books of accounts. Before filing their tax returns, they should also get their accounts audited.

The audit report should also be submitted when filing tax returns. But this can be a burden for smaller businesses and professionals. The government introduced the Presumptive Taxation Scheme (PTS) from FY 2016-17 to make tax compliance easier for such taxpayers.

Under this scheme, eligible taxpayers can file returns at a prescribed rate, eliminating the need to maintain books of accounts regularly. But for turnover calculation, some accounts still need to be maintained.

What is the Tax Rate Under PTS?

The PTS was introduced under Section 44 of the IT Act. It is divided into three sections: Section 44AD, Section 44ADA, and Section 44AE, for different business and professional categories. Here’s what these sections mean.

Section 44AD

Businesses with a turnover of less than Rs. 2 crores in a financial year can opt for the scheme. Eligible businesses opting for PTS must declare profits @6% of their digital transactions and @8% of the non-digital transactions, whichever is applicable. Resident individuals, resident partnerships, and resident HUFs who have not claimed profit-linked deductions can opt for PTS under Section 44AD.

Section 44ADA

Professionals involved in fields such as legal, engineering, medical, accountant, interior designing, architecture, etc., can opt for PTS under Section 44ADA. Under the scheme, eligible professionals with revenue less than Rs. 50 lakhs in a financial year, the profits are presumed at 50% of the gross income.

Section 44AE

Small businesses engaged in hiring, leasing, or plying goods carriages and not having more than ten carriage vehicles can opt for PTS under Section 44AE. All the eligible assesse like individuals, partnership firms, and HUFs can opt for the scheme. The income of the eligible assesse will be calculated as Rs. 7,500/month/vehicle.

What are Some Other Important Things About PTS?

Here are a few other things to know about PTS:

  • Assesses opting for PTS must pay 100% of the presumptive income tax as advance tax by 15th March every year.
  • If the income is filed under Section 44AD, the assesse should use the same method for at least five years. However, there are no such restrictions under Section 44ADA and Section 44AE.
  • Regular books of accounts should be maintained if the eligible assesse would like to claim a lower profit than what is prescribed as per PTS.
  • Businesses should use online ITR Form 3 or Form 4, as per the eligibility for filing returns under PTS.

Tax Compliance Made Easier with Presumptive Taxation Scheme

Eligible taxpayers can take advantage of the PTS scheme to eliminate bookkeeping hassles and reduce their tax liabilities. But it is essential to thoroughly understand the provisions under various sections of the IT Act to make the best use of the presumptive scheme.

Consult a tax professional to know more about the scheme and ensure that your tax returns are filed correctly without any errors.

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