Income Tax Return e-Filing for AY 2019-20: A taxpayer can file ITR under the presumptive tax method complying with section 44AD, 44AE, and 44ADA of the I-T Act.
e-filing of Income Tax Return 2019-20: Small business owners and people having professional income may find it difficult to keep records of all their business expenses to file the Income Tax Returns (ITR). Maintaining the accounting records can be an expensive affair too for such taxpayers. Therefore, to ease their ITR filing process, the Income Tax Department allows the ‘presumptive tax method.’
Under presumptive taxation, the taxpayer is not required to maintain the accounting book and tax filing is allowed for taxpayers who meet the eligibility norms as per the income tax rules. Let’s start with checking out the eligibility requirements to file tax returns under the presumptive method.
Eligibility for the Presumptive Taxation Scheme
A taxpayer can file ITR under the presumptive method complying with section 44AD, 44AE, and 44ADA of the I-T Act.
A taxpayer who runs business other than leasing of goods carriages, plying, agency business, brokerage, etc., can file ITR under section 44AD. The taxpayer can be a resident, including individuals, Hindu Undivided Family, or a partnership firm. However, taxpayers whose gross receipt during the relevant financial year exceeds Rs 2 crore are not eligible to file the presumptive tax under section 44AD.
Similarly, section 44ADA allows eligible professionals to file the ITR under the presumptive taxation method. Eligible professionals include accountants, doctors, and architects, among others. However, if the gross receipt during the relevant financial year exceeds Rs 50 lakh, the taxpayer is not allowed to avail the presumptive scheme.
Section 44 AE, on the other hand, allows the filing of returns under the presumptive method to people in the business of plying, goods carriages, etc.
In this article, we will focus on ITR related to Sections 44AD and 44 ADA.
Filing tax returns under section 44AD
As mentioned above, the presumptive taxation method under section 44AD applies to taxpayers who are engaged in the occupation of business. Under this section, the income of the taxpayer is calculated as 6% or 8% of the gross business receipt (turnover) during the relevant financial year. So, the taxpayer doesn’t need to deduct the expenses from the gross receipt to calculate their income. The taxpayer can voluntarily calculate income at more than 8%.
Filing tax under section 44ADA
A taxpayer who earns professional income can file the presumptive tax under section 44ADA. Under this scheme, the income is calculated as 50% of the gross receipt from the profession. The taxpayer is allowed to claim the income of more than 50%. That being said, under this presumptive scheme, the taxpayer is not allowed to claim additional expenses for deduction after computing 50% profit from the gross income.
An important point to keep in mind
Once a taxpayer opts for the presumptive scheme, he/she has to adopt it continuously for the next 5 years. If the taxpayer fails to adopt the scheme consistently for 5 years, he/she would not be allowed to avail the presumptive scheme for the next 5 years.
So, why you should opt for presumptive taxation?
The most important reason to adopt the presumptive taxation method for filing ITR is that you don’t need to maintain books of account under section 44AA. If your business/professional expenses are less than the threshold under the presumptive scheme, you can simply make the applicable deduction to compute the income without the need of maintaining the books of account. However, if your expenses exceed the limit, i.e., your profits are less than 50% or 8% from a profession or business income respectively, you will have to maintain the books of account and also get them audited under section 44AB of the I-T Act.
So, if you are not expecting to cross the gross receipt limit as per the presumptive scheme during the relevant financial year, the presumptive taxation method can save you from lots of paperwork and significantly reduce your accounting expenses.
On the other hand, if you are a professional who also owns a business, you too can avail the facility of presumptive taxation, provided you can distinguish both the occupation and fulfil the eligibility norms of respective gross receipt limits.
(The author is CEO, Bankbazaar.com)