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You are a small business owner? Here's how to file your tax
August, 28th 2015

To give relief to small taxpayers from the tedious job of maintenance of books of account and from getting the accounts audited, the Income-tax Act has framed the presumptive taxation scheme under sections 44AD and section 44AE


The provisions of section 44AD are applicable to such resident assessee who is an Individual, Hindu Undivided Family and Partnership Firm but not Limited Liability Partnership Firm.

Unlike section 44AE, in case of section 44AD there is a restriction on which categories of assessees can opt for the scheme. Only specific categories of resident assessees as discussed above can opt for this scheme

The presumptive taxation scheme under these provisions can be opted for by the eligible assessee who is engaged in any business (except the business of plying, hiring or leasing goods carriages referred to in section 44AE), whose turnover or gross receipts from such business do not exceed the prescribed limit of audit under section 44AB
As per Section 44AB, the Tax audit will be applicable to the Assessee carrying on business, if his turnover exceeds Rs 1,00,00,000 effectively from the previous year 2012-13. For the previous year 2011-12, this limit was Rs. 60,00,000

Further, these provisions can be adopted by the assessee only if he has not claimed deduction under:
Section 10A: Special provisions in respect of newly established Units in Special Economic Zones
Section 10AA: Special provision in respect of newly established undertakings in free trade zone
Section 10B: Special provisions in respect of newly established hundred per cent export-oriented undertakings
Section 10BA: Special provisions in respect of export of certain articles or things or under sections 80HH to 80RRB in the relevant year.

Moreover, the provisions of section 44AD cannot be adopted by an assessee who is engaged in any profession as prescribed under section 44AA or is carrying on an agency business or is earning income in the nature of commission or brokerage.

As per section 44AA, any person carrying on any of the following professions is required to maintain books of account:
Chartered Accountant
Technical consultancy
Interior designers

Any other such professions as may be notified by the central board of direct taxes.

The basic and most important aspect of this scheme is the turnover or gross receipts from the eligible business. To opt for the scheme the turnover should not exceed Rs. 1,00,00,000 because as per our discussion above, if the turnover of the eligible business exceeds Rs. 1,00,00,000, the Audit under section 44AB will be applicable and thus this scheme would not be applicable.

Now lets go through the scheme to understand how the profits would be calculated as per section 44AD: The net income for the business will be calculated as 8% of the total turnover or gross receipts of the eligible business. From this net income the assessee will not be permitted to claim any deductions under section 30 to 38 (including depreciation or unabsorbed depreciation).

One more thing to be kept in mind is that the 8% is the minimum prescribed percentage to avail this scheme under section 44AD. That means if the assessee has profits higher than 8% than that should be considered as the actual profits.

While calculating the profits of a partnership firm, following things will have to be kept in mind.

In case of a partnership firm opting for this scheme, they would be allowed the deduction of remuneration and interest paid to its partners within the limits specified under section 40(b). In other words, in case of an assessee, being a partnership firm, separate deduction from the net income computed as per presumptive taxation scheme in respect of remuneration and interest paid to its partners is allowed.

Further, from income computed at the aforesaid rate, no disallowance can be made under sections 40, 40A and 43B. Thus, in case of an assessee adopting the presumptive taxation scheme of section 44AD, no disallowance under sections 40, 40A and 43B will apply.

No need to pay advance tax: A person opting for the presumptive taxation scheme of section 44AD will not be liable to pay advance tax in respect of income from business covered under section 44AD.

The presumptive taxation scheme of section 44AE can be adopted by a person who is engaged in the business of plying, hiring or leasing of goods carriages and who does not own more than 10 goods vehicles at any time during the year. This benefit can be availed by an individual, HUF, firm, company, etc

Income as per this scheme will be computed @ Rs. 7,500 per month(per vehicle), or part thereof during which the goods vehicle is owned by the taxpayer during the year. Part of the month would be considered as full month. One important thing to be kept in mind is that If the actual income is higher than the presumptive rate, of Rs. 7,500, per month per vehicle, then such higher income can be declared.

Which ITR to be filed: If you opt for the scheme of presumptive taxation under section 44AD and 44AE, you can file ITR 4S (SARAL) if you do not have income from any other normal business or profession. Incase if you have income from multiple business and professions including the ones for which presumptive taxation scheme is opted, than in that case you can file ITR 4.

There are different online platforms that allow you to add the incomes on presumptive basis along with other incomes if any. is one such website which takes care of your incomes from presumtive business. It automatically selects the applicable ITR for you so that you don’t have to worry about selecting them on your own.
(The guest column by Anand Satyapanthi, Co-Founder, -- an online forum for tax returns)

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