Sunday, 14 September 2014

Presumptive taxation under Sections 44AD, 44AE and 44AF

Sections 44AD, 44AE and 44 AF cover special provisions of computing profits on a presumptive basis. All the schemes are optional at the discretion of the assessee. Conditions and manner of computation common to all three sections are given at the end after specific provisions applying to each section.http://i2.wp.com/taxguru.in/wp-includes/js/tinymce/plugins/wordpress/img/trans.gif
A. Section 44AD – Presumptive computation of profits for taxation for business
(Provisions as Applicable from A.Y. 2011-12, the old provisions pertaining to Section 44AD will continue to apply till March 2010)
1] Applies to:
Any eligible assessee engaged in an eligible business. Eligible assessee is defined as an individual, HUF, resident partnership firm, but excludes an LLP under the LLP Act, 2008 and any assessee who has claimed a deduction under sections 10A, 10AA, 10B, 10BA or heading C of Chapter VIA (sections 80I-A, 80-IB, etc.). An eligible business means any business other than the business of plying, hiring, or leasing of goods carriage as given in section 44AE and whose turnover/gross receipt in the previous year does not exceed Rs. 60,00,000 in A.Y. 2011-12 and 2012-13 and Rs. 1,00,00,000 in AY 2013-14 or in Year Succeeding the AY 2013-14.
2] Deemed Income:
8% of the total turnover or gross receipts of the assessee on account of such business or any higher amount voluntarily declared by him shall be deemed to be his income chargeable to tax.
Refer to ‘A] Conditions’ and ‘B] Computation’ below.
Provisions of Chapter XVII C relating to Advance Payment of taxes will not apply to the eligible assessee in respect of eligible business only.
C. Section 44AE – Business of plying, leasing or hiring trucks
(Applicable till A.Y. 2010-11, this section is amended from A.Y. 2011-12 details of which are given in paragraph D)
1] Applies to:
Any person engaged in the business of plying, leasing or hiring of trucks if he owns not more than 10 goods carriages at any time during the previous year including those taken on hire purchase or on instalments. This scheme does not apply to those who operate trucks on hire without owning them (Circular 684, dt. 10-6-1994)
2] Income:
Type of Goods Carriage
Estimated Income
Heavy Goods Vehicle
Rs. 3,500 for every month (or part of a month) during which the goods carriage is owned by the taxpayer.
Other than Heavy goods vehicle
Rs. 3,150 for every month (or part of a month) during which the goods carriage is owned by the tax-payer.
Refer to ‘A] Conditions’ and ‘B] Computation’ below.
D. Business of plying, leasing or hiring trucks – Section 44AE
(Applicable from A.Y. 2011-12, the old provisions pertaining to Section 44AE will continue to apply till March 2010)
1] Applies to:
Any person engaged in the business of plying, leasing or hiring of trucks if he owns not more than 10 goods carriages at any time during the previous year including those taken on hire purchase or on instalments. This scheme does not apply to those who operate trucks on hire without owning them (Circular 684, dt. 10-6-1994)
2] Deemed Income:
Type of Goods Carriage
Estimated Income
Heavy Goods Vehicle
Higher of Rs. 5,000 for every month (or part of a month) during which the goods carriage is owned by the tax-payer or an
amount actually earned from such vehicle.
Other than Heavy goods vehicle
Higher of Rs. 4,500 for every month (or part of a month) during which the goods carriage is owned by the tax-payer or an
amount actually earned from such vehicle.
Refer to ‘A] Conditions’ and ‘B] Computation’ below.
E. Section 44AF – Business of retail trading of goods
(Applicable till A.Y. 2010-11, this section will become inoperative from AY 2011-12 and the retail traders can choose to be governed by section 44AD from A.Y. 2011-12 which requires presumptive income at 8% of gross receipts/turnover)
1] Applies to:
Any person engaged in the business of retail trade in any goods or merchandise shall be covered by this provision. If his turnover from the above business do not exceed Rs. 40 lakhs.
2] Deemed Income:
5% of the total turnover of such person or a higher sum voluntarily declared by him shall be deemed to be his income from such business.
Refer to ‘A] Conditions’ and ‘B] Computation’ below.
Common Conditions and Computation method:
A. Conditions:
All deductions u/s. 30 to 38 including depreciation deemed to be allowed. No further deduction allowed under those sections.
The written down value of asset used in the business will be computed as if depreciation, as applicable, was allowed.
It will be assumed that disallowances if any u/ss. 40, 40A and 43B were considered by calculating the income estimated in 2] above.
In the case of a firm, the deduction in respect of salary and interest to partners u/s. 40(b) will be allowed.
In respect of this business the assessee is not required to maintain books of account as per the provisions of s. 44AA.
The assessee is not required to get the books of account audited u/s. 44AB in respect of the above business.
If the assessee wants to declare lower income than the deemed profits as calculated above, he will have to maintain the books of account as per s. 44AA and get the accounts audited as per s. 44AB irrespective of turnover if his total income exceeds basic exemption limit.
B. Computation:
The income calculated above shall be aggregated with income from any other business or other heads of income under the other provisions of the Income-tax Act.
The brought forward business losses and other losses will be deducted.
All deductions u/ss. 80CCC to 80U shall be allowed
NOTE:
1. The profit and loss from related businesses covered by sections 44B, 44BB, 44BBA, 44BBB, namely Shipping business in case of non-residents, Business of exploration, etc. of mineral oils, Operation of aircraft in case of non-residents, Foreign companies engaged in the business of civil construction, etc., in certain turnkey projects are not covered here as they have lower relevance and usage.
2. Year wise limit for section 44AB tax audit from financial year 2009-10 is given here under .
SR N0
FINANCIAL YEAR
LIMIT (BUSINESS)
PROFESSIONAL
1
2009-10
  40   LAKH
10 LAKH
2
2010-11,2011-12
  60   LAKH
15 LAKH
3
2012-13 ONWARDS
100 LAKH
25 LAKH

- See more at: http://taxguru.in/income-tax/income-tax-provisions-related-to-presumptive-taxation-under-sections-44ad-44ae-and-44af-in-a-brief.html#sthash.iOAQ3mfz.dpuf

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