Presumptive Taxation Scheme Part - I

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As promised in the earlier blog, I have come up with the concept of Presumptive Taxation Scheme (PTS) where the department of revenue levies taxes at a concessional rate if certain conditions are met. The scheme is divided into varied sections as per the applicability to different assessees:

  • 44AD: Relief to the small tax payers
  • 44ADA: Relief to professionals
  • 44AE: Relief to the transporters
  • 44B: PTS for assessees engaged in shipping business
  • 44BBA: PTS for assessees engaged in the business of operation of aircraft
  • 44BB: PTS for assessees engaged in the business of mineral oils
  • 44BBB: PTS for assessees engaged in the business of turnkey power projects approved by the Central Government
We would cover section 44AD in this blog and the rest would follow in Part - II, III & IV respectively.

A. Section 44AD

Note:
  1. If one declares the income as per the concept of PTS u/s 44AD, then, it is mandatory for the assessee to follow the same method for 5 consecutive years.
  2. In case, the assessee breaks point 1 above in any of the 5 years, then, he would not be allowed to claim the benefit u/s 44AD for next 5 consecutive years.  
B. Example:
Below are the extracts of the financials of Mr. Piyush Gandhi from the AY 2018-19 to AY 2021-22.
Determine the years where PTS stands applicable. Also determine that whether books are required to be maintained u/s 44AA and whether audit would be compulsory u/s 44AB. Assume that he does not receive any amount other than cash.

C. Solution:
In the above case, Mr. A would be eligible for the scheme of PTS in the AY 2019-20 and AY 2018-19 only because the income disclosed for the purpose of taxes is @8% of the turnover.
However, since in case 2, Mr. Piyush does not abide by the rules of section 44AD, hence, for the next 5 consecutive AY's after AY 2021-22, he shall not be able to avail the scheme of presumptive taxation. Also, he shall maintain the books and perform the compulsory audit procedure as per section 44AA and 44AB respectively.

D. Solution to the questions in the Advance Tax blog:

Answer to 1st Question: 4 (Four)
Answer to 2nd Question: 4 (NIL)

E. Questions
Let's have a few MCQ's in relation to above. Please leave your answers in the comment below:
  • Manoj is having a gross receipt of Rs. 1,00,00,000 by way of UPI. How much income is he earning under section 44AD?
  1. Rs. 1,00,000
  2. Rs. 6,00,000
  3. Rs. 5,00,000
  4. Rs. 4,00,000
  • Sushil is having a gross receipt of Rs. 1,00,00,000 by way of cash. How much income is he earning under section 44AD?
  1. Rs. 1,00,000
  2. Rs. 6,00,000
  3. Rs. 8,00,000
  4. Rs. 4,00,000
    I hope by now you must have understood the basic idea of Presumptive Taxation Scheme under section 44AD. 

    Please put your queries in the comment section below and I shall be happy to answer them.

    Disclaimer: These are just basic concepts. However, the applicability of the law shall depend on case to case basis. 

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    Thank you for reading!!

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