Presumptive Taxation: Professional v/s Businessman
Section 44ADA contains a special provision for computing profits and gains of profession on presumptive basis. As per this section in the case of an assessee, being a resident in India, who is engaged in a profession referred to in section 44AA and whose total gross receipts do not exceed fifty lakh rupees in a previous year shall be eligible to claim a sum equal to fifty per cent of the total gross receipts or a sum higher than the aforesaid sum as income chargeable to tax under the head “Profits and gains of business or profession”. No deduction under the provisions of sections 30 to 38 shall be allowed after computation of profit as mentioned above.
In case an assessee claims that his profits and gains from the profession are lower than the profits and gains as computed above and also total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under section 44AA and get them audited and furnish a report of such audit as required under section 44AB.
Now when we speak about the provision for businessman section 44AD comes into picture. As per this section in case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts or a sum higher than the aforesaid sum shall be chargeable to tax under the head “Profits and gains of business or profession”.
As per the proviso the words “eight per cent” the words “six per cent” had been substituted, in respect of the amount of total turnover or gross receipts which is received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date of return filing.
No deductions under the provisions of sections 30 to 38 shall be allowed while computing the profit.
Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and declares profit for any of the five previous year succeeding such previous year not in accordance with the provisions of this section he shall not be eligible to claim the benefit of the provisions of this section for five previous year in which the profit has not been declared in accordance with this section.
An eligible assessee to whom the above provision is applicable and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under section 44AA and get them audited and furnish a report of such audit as required under section 44AB.
On a careful analysis of the sections following points are worth noting:
- The profit percentage for the purpose of Section 44AD (businessman) is 8% or 6% as the case may be while for Section 44ADA (Professionals) it is 50% of the Gross Receipts.
- Businessman upto the turnover of 2 Crore are eligible for Section 44AD while professionals only till Gross Receipts of Rs. 50 Lakhs are eligible for Section 44ADA.
- If you are opting for the presumptive scheme under section 44AD then you must- a)File presumptive scheme for at least 5 years in continuation. b)If you decide to show and file profits as per regular business before the end of these 5 years, you will lose presumptive benefits and disallowed from presumptive taxation for the subsequent 5 years.
Please note that 5 years shall be counted starting the year in which you first file usual taxes for such business.
However this provision is not applicable on professionals.