What is Presumptive Taxation

What is Presumptive Taxation  (Section 44AD)

We all know that in order to calculate Tax payable by a business house or Professionals like Doctor , lawyers, CA etc , we have to check their Books of accounts , Find out his Turnover or Income and assess Income tax payable by Them.

However in order to save them from complexities , Govt has launched a scheme for such Business man whose annual turnover is less than 2 crore per FY  and Professionals whose Income is less than 50 lakh per FY to avoid keeping books of Accounts and pay tax on Presumption basis as follow :

A person adopting the presumptive taxation scheme can declare income at a prescribed rate and, in turn, is relieved from tedious job of maintenance of books of account.

in case of a person adopting the provisions of section 44AD, income will be computed on presumptive basis, i.e., @ 8% of the turnover or gross receipts of the eligible business for the year.

Income shall be calculated at rate of 6% in respect of total turnover or gross receipts which is received by an account payee cheque or draft or use of electronic clearing system.

In other words, in case of a person adopting the provisions of section 44AD​, income will not be computed in normal manner (i.e., Turnover less Expense) but will be computed @ 8%/6% of the turnover.

Income at higher rate, i.e., higher than 8% can be declared if the actual income is higher than 8%. ​

Professionals like doctors, lawyers, architects, interior designers CA CMS CS and others can adopt PTS. For them, 50% of the total receipts during the fiscal will be considered as profit and get taxed accordingly. A professional can voluntarily declare the income at a higher rate than mandatory 50% of the total receipts.

Example :

A business house adopts PTS (Presumptive Tax System ) , his total income by way of cash transaction is 1 cr and by way of digital mode (Banking) is 50 lakh , his income for taxation purpose will be computed as follow

8% of 1 crore =  Rs. 800000

6% of 50L     =  Rs. 300000

 Toatl             = Rs  1100000

Tax on Rs 11 Lakh will be computed as per his slab

2. A lawyer receives Rs 50 Lakh as his fee in a year. His income for tax purpose will be Taken as Rs 25lakh (50% of Rs 50 Lakh) . Tax on 25 Lakh will be computed as per his Slab.

In both cases books of Accounts are not needed to be maintained.

This scheme is not available for salaried class people.
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