Tax Return Under Presumptive Taxation Scheme

The Budget 2017 proposed a new Section 44ADA to the Income Tax Act which talks about Presumptive Taxation Scheme (PTS) regime for professionals in order to reduce the compliance burden of small tax payers. It was proposed to provide estimation of income of an assessee who is engaged in any profession referred to in sub-section (1) of section 44AA. The Finance Bill 2017 also proposes to reduce the rate at which businesses can declare their incomes for AY
2018-19 to 6% from 8% currently.

It is further clarified that who all can actually file a return under presumptive taxation scheme. Resident Hindu Undivided Families (HUFs) and resident partnership firms can opt for this scheme. However, limited liability partnership (LLP), businesses that claim benefits for being located in special economic zones or backward areas, and those whose income is from commission or brokerage fees (such as insurance agents or mutual fund advisers) cannot adopt this scheme.

Apart from businesses, professionals such as doctors, lawyers, architects, interior designers, accountants, technical consultants and others can also choose the PTS to file their returns. However, to do this, their gross receipts should not exceed Rs. 50 lakh in the previous year. For these professionals, 50% of the total receipts during the fiscal will be considered as profit and get taxed accordingly. Professionals, too, can voluntarily declare their income at a higher rate than the mandatory 50% of total receipts.

From AY2017-18, the scheme will cover businesses with a total turnover of less than Rs. 2 crore during a financial year. Earlier the limit was Rs. 1 crore. Those in the business of plying, hiring or leasing goods carriages can avail PTS under section 44AE of the Act.

When a business or professional opts for Presumptive Taxation Scheme (PTS), it can estimate its income at 8% of the total turnover for AY2017-18. If a business opts for PTS in any assessment year, then it has to continue with the scheme for next 5 assessment years. If it opts out of PTS earlier, then PTS will not be available for it for the next 5 assessment years.

Further, the business would be required to maintain books of account for this period and is also liable for tax audit as per section 44AB from the assessment year in which it opts out of the Presumptive Taxation Scheme (PTS), if its total income falls under the slab chargeable to tax.