Presumptive Tax Scheme (PTS)
Who is eligible for presumptive taxation?
Main object of presumptive tax scheme in India was to reduce tax compliance burden on small tax payers. Those business under PTS are not required to maintain books of account, the can show their income at a fix rate.
What is PTS u/s 44AD of Income Tax Act
Those Tax payers who are:-
- Resident Individual
- Partnership Firm (except LLP )
For example an proprietor (individual) tax payers who run a store, his annual turnover for the last year is 75 lacs. He can opt for PTS scheme, to avoid tedious work involved in tax filing, provisions of PTS is mainly small size businessmen.
Person who cannot avail Presumptive Tax Scheme PTS:-
- Individuals or firms carrying out business in Goods Carriages.
- Individuals or firms earning brokerage or commission.
Is presumptive taxation applicable to companies?
- Private Limited Companies cannot avail PTS.
PTS Rates of Income Tax u/s 44 AD
It is calculated as 8 % of gross sale/ receipts. Tax payers can declare even at higher rate.
For Example Mr. Mohan is running stationery business , turnover 70 lacs (less than 2 cr) his PTS liability will be 5.6 lacs (8% of 70 lacs) his annual presumptive tax will be Rs. 6.4 lakhs (i.e. 8% of 80 lakh).
For the purposes of this section, the expression “Eligible Business” refers business except the business of plying, hiring or leasing goods carriages
Presumptive Taxation Scheme for small professionals.
PTS not applicable to the following
- Business of plying, hiring or leasing of goods carriages
- A person running any agency business.
- A person who is earning commission or brokerage
whose turnover or gross receipts from such business do not exceed the tax audit limit. An assessee can claim tax deductions and avail benefits under Chapter VI- A even if he is declaring under PTS
What is presumptive business income under section 44ad?
u/s 44ADA PTS to professionals, to adopt the provisions of presumptive taxation scheme provided their gross receipts do not exceed Rs.50 lakh. Following are covered :-
- Architectural profession
- Technical consultant
- Interior business
This also covers freelancers such as software development/ website design.
Lets Take example of PTS of Firm
There is partnership firm xyz & associates, turnover of previous year 80 lacs, income declared under PTS 6.40 lacs (8%) , any expenses u/s 30 to 38 (like depreciation) cannot be claimed while computing PTS
Provisions relating to maintenance of books of account:
The main objective of PTS is to provide relief to small tax payers from the tedious work of maintaining books of accounts. An assesse, who opts for PTS, is not required to maintain any books of account.
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