catanuja-gupta-presumptive-taxation-msme-small-business-professionals

Who Can Benefit from Presumptive Taxation for Small MSME Businesses and Professionals?

You as a small business or Professional generally have to maintain Books of accounts to compute your Profits and Gains from Business & Profession but if you qualify for the Presumptive Taxation scheme subject to certain limits and conditions, then you can easily compute your Profits and gains from your business or profession at a Flat percentage of your Total Turnover or Gross Receipts without maintaining income and expense statement.

“MSMEs are the growth engines of our economy,” Sitharaman said. “- The Reason for increasing eligibility limits for FY2023-24 to 3 Crores & Rs. 75Lacs for Small Businesses & professionals under the Presumptive Taxation scheme is to promote non-cash transactions and ease compliance by reducing high compliance costs for small and micro enterprises.

FM Sitharaman said

Find out whether you are eligible to claim Presumptive Taxation

If you qualify for all the following conditions and limits, then you are very much eligible to claim a fixed percentage of Gross Receipts as your Profits and Gains from Business & Profession either as a Professional u/s 44ADA or as a small MSME or Business U/s 44AD.

Section44ADA44AD
Are You?Individual or Partnership FirmIndividual, HUF, or Partnership Firm
Your Residential Status?Resident In IndiaResident In India
Your Job?A Professional like doctor, engineer, lawyer, accountant, architect, interior decorator, technical consultant, advertisingRunning Any Small business
(other than Commission/Brokerage/Agency/Goods Carriages)
Is your bank income 95% online mode, digital transactions or non-cash transactions?
 
Is your Gross Receipts/Turnover?
Yes



Less Than 75Lacs
Yes



Less Than 3 Crores
Is your Cash income more than 5% of your Total Gross Receipts or Turnover?
 
Is your Gross Receipts/Turnover?
Yes



Less Than 50Lacs
Yes



Less Than 2 Crores
Then, Your Chargeable Deemed Profits/Gains at Fixed Percentage (Rate)50%* Gross Receipts or higher than 50%*Gross Receipts6%/8%* Gross Receipts or higher than 6%/8%*Gross Receipts/Total Turnover
Am I eligible for a Presumptive Taxation Benefit?YesYes
Who Can Benefit from Presumptive Taxation for Small MSME Businesses and Professionals?

Mandatory Maintaining of Books of Accounts

If you are not covered by Presumptive Taxation and your gross receipts exceed the limits mentioned below, then you will have to maintain the following Book of accounts;

Vouchers, Journal, Ledger, Cash Book, Purchase Book, and Sales Book and prepare complete Final Accounts with a complete breakup of all your Business or Professional Incomes and expenses, to arrive at Profits and Gains from Business or Profession. Books of Accounts compulsory/mandatory for Professional or MSME/Small Businesses

PersonProfessionalMSME/small Businesses
IndividualGross Receipt Exceed 1.5LacsGross Receipt >25Lacs
or
Business Income>2.5Lacs
HUFN.AGross Receipt >25Lacs
or
Business Income>2.5Lacs
Partnership FirmGross Receipt Exceed 1.5LacsGross Receipt >10Lacs
or
Business Income>1.2Lacs
Books of Accounts mandatory

Cash vs Non-Cash Income

Cash Receipts, Bank Cheques, or Bank Drafts are all considered to be Cash Receipts. Only Account Payee crossed cheques, online transfers by electronic mode are considered to be Digital Transactions or Non-Cash Transactions

Some Pre-conditions before you Opt-In for Presumptive Taxation

Once you opt for a presumptive taxation benefit, you have to continue for a continuous period of 5 years else you will lose the benefit for the next 5 years. No switching between regular Books of Accounts and Presumptive Taxation is allowed.

Only if you are not eligible or do not qualify for presumptive taxation benefit in any one of the 5 succeeding years, you can opt out and then continue in the subsequent years again.

Once you opt out of the Presumptive Taxation scheme within 5 year lock-in period even after being qualifying all the conditions, then you will be subject to a Tax Audit and submit Tax Audit report along with Filing of regular Income Tax returns.

Which ITR form is applicable for Presumptive Taxation

ITR4 is applicable in your case which is a much simpler form to fill in your Income Details.

What is Advance Tax Provision?

Unlike others, you can pay 100% advance tax by 15th March instead of paying advance tax in 4 installments like many others.

Maintaining Books of Accounts Mandatory

Preparing Income and expense statements to compute your Profits and gains from Business & Profession is not required, as Your Chargeable Deemed Profits or Gains are a fixed Predetermined percentage or more of your Gross Receipts or Total Turnover.

Once you have computed your Profits and Gains from Business and Profession, it is then added to all your Salary Income, Income from House Property, Capital Gains, Income from Other Sources and after claiming all deductions applicable to you, your Total Income is computed. Based on your Total Income, your tax is calculated on your regular tax slabs.

Benefits of Presumptive Taxation Scheme

  1. No Maintaining Books of Accounts
  2. No Tax Audit
  3. Single Advance Tax Payment on 15th March
  4. Fixed Percentage of Gross Receipts as Deemed Profits. No Income & Expense Statement to be prepared.
  5. Low Compliance Costs.

44ADA

Presumptive Taxation for Professionals

Many professionals like technical consultants and advertising professionals work either as freelancers or consultants and also do some side hustles are also eligible for claiming presumptive taxation benefit of easy compliance and quick filing of income tax returns in ITR-4.

Presumptive Taxation for Doctors

catanuja-gupta-presumptive-taxation-professionals-doctors-44ada

Doctors being Resident Individuals in India are very much eligible to claim Presumptive Taxation benefits and pay a flat fixed percentage of 50% of your Gross Receipts up to Rs.50Lacs if you receive the majority of your income in cash. But if you receive 95% of your income directly in your bank account then you don’t need to prepare an Income & Expense statement till you reach a turnover of Rs.75Lacs. Also if you are working in any hospital as a visiting consultant or as a freelancer and your TDS is deducted u/s 194J at 10% of your income, then also you are eligible to claim this Presumptive Taxation benefit.

In the following example, Sunil who earned Professional Income of Rs.75Lacs(assuming no Professional Expenses claimed). He evaluated between the 2 options between opting in and out of PTS. His Business Income is Rs.75Lacs without opting for PTS and Rs.37.5Lacs with PTS. As you can see from the example discussed below, there is a clear saving of Rs.12.375Lacs(21.45-9.075). He finally decided to opt for PTS and save his tax.

Income Tax Payable without opting for Presumptive Taxation Scheme

Income SlabsProfessional IncomeTax RateTotal Tax
o to 3Lacs3Lacs00
3 to 6Lacs3Lacs5%15,000
6 to 9Lacs3Lacs10%30,000
9 to 12Lacs3Lacs15%45,000
12 to 15Lacs3Lacs20%60,000
Above 15Lacs60Lacs30%18,00,000
75Lacs19,50,000
Surcharge10%1,95,000
Total Tax Payable21,45,000
Income Tax Payable without opting for Presumptive Taxation Scheme

Income Tax Payable after opting for Presumptive Taxation Scheme

Sunil Earned Rs.75Lacs as his Professional Income. With PTS, his Business Income is 50%*75Lacs= 37.5Lacs

Income SlabsProfessional IncomeTax RateTotal Tax
o to 3Lacs3Lacs00
3 to 6Lacs3Lacs5%15,000
6 to 9Lacs3Lacs10%30,000
9 to 12Lacs3Lacs15%45,000
12 to 15Lacs3Lacs20%60,000
Above 15Lacs22.5Lacs30%675000
37.5Lacs8,25,000
Surcharge10%82,500
Total Tax Payable9,07,500
Income Tax Payable after opting for Presumptive Taxation Scheme

44AD

Presumptive Taxation for MSME and for Business

The most talked about in today’s business world is the micro small and medium enterprises. You as small businesses are also covered by the presumptive taxation benefit. If you are a coach, trainer, run an agency, yoga instructor, retailer, service provider, market research freelancer, chef, cook, work from home, speaker, trader, author, or writer, you can claim the benefit of presumptive taxation scheme up to a maximum of Rs.2crores/3crores as applicable.

Presumptive Taxation for Salaried Employees & for F&O

catanuja-gupta-presumptive-taxation-msme-f&o-salaried

Salaried employees are not directly eligible for presumptive tax benefits. To your greatest surprise, if you are dealing in F&O, it is chargeable to tax as a business income. Since all the transactions of F&O are digital, you are eligible for enhanced turnover limits of Rs. 3 crores and you can compute 6% of your total Turnover as Deemed Profits.

Presumptive Taxation for Freelancers

Freelancers can work as a small agency of your own. You can claim the benefits of Presumptive taxation and compute taxes accordingly. You can claim any TDS deducted from your income against your total taxes payable while filing your return of income.

Presumptive Taxation for AY 2024-25

The enhanced limits of Rs.75Lacs & Rs.3 crores are a big relief to all those dealing in non-cash transactions as it eases compliances.

Presumptive Taxation for International Transactions

catanuja-gupta-presumptive-taxation-msme-small-business-professionals-international-foreign-client

Income from foreign clients is not exempt from Income Tax. But you can claim the benefit of Presumptive Taxation for all International Transactions also. If they deduct TDS, you can claim the TDS against your total tax payable and claim refund or pay any further tax payable, if any. If they don’t deduct TDS, then you can pay total tax on all incomes including income from foreign clients.

Conclusion

Don’t miss out on all the benefits of Presumptive Taxation scheme for Small MSME and Professionals of No Books Of Accounts, No Tax Audit, Flat % of Total Turnover or Gross Receipts Taxed, 15th March Advance Tax only, ease of doing business for MSMEs.

If you want any clarifications about presumptive taxation, send your details to [email protected] and your Income Tax Return will be filed in less than half an hour.

You can also contact me here

Please Note: It is always advisable to prepare Statement of Income & Expense and evaluate between the options of PTS or Regular ITR filing accordingly. If you have expenses more than 50% of your Professional Income, you should prepare Books Of Accounts and file Tax Returns accordingly. But in any other case if you fulfill PTS criteria, and If you wish to just file your Tax Returns without claiming any professional expenses, without the elaborate process of preparing your Books of Accounts and without filing elaborate ITR form 3, then PTS would be best for you.

FAQ’s

Who is eligible for presumptive taxation?

Sec44ADA for professionals like doctors, lawyers, engineers, interior decorators, consultants, accountants who are Resident Individual or Partnership Firm upto a Gross Receipt of Rs.75Lacs and Sec 44AD for small MSME and small businesses like traders, freelancers who are Resident Individual, HUF, Partnership Firm upto a Gross Receipt of Rs.3Crores.

What is an example of a presumptive tax?

As a Professional if you have earned Gross Receipts of Rs.50Lacs, then your Deemed Income will be Rs.25Lacs(50% of 50Lacs) without preparing statement of income and expense.
As a small MSME or small business, if you have earned Rs.3crores, out of which Rs.2.85crores is received online in your bank and Rs.15Lacs is Cash income, then your Deemed Income will be Rs.17.10Lacs(2.85cr*6%)+ Rs.1.2Lacs(15*8%)= Rs.18.3Lacs

What is the limit of 44ada for AY2023-24?

Sec 44ADA, for professionals, limit is Rs. 75Lacs, if 95% of Income is online digital transactions
Sec 44AD, for MSME and small business, limit is Rs. 3crores, if 95% of Income is online digital transactions

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