Every taxpayer wishes for an easy and hassle-free way to do taxes. That is what the Section 44D of the Income Tax Act 1961 does. It simplified the process of tax filing for small business owners. Presumptive taxation is a simplified way of taxation that eases the entire process.

Read More: Filed ITR But Didn’t Get A Tax Refund Yet? Here’s How To Request A Reissue

What Is Presumptive Taxation?

Presumptive taxation is basically where a taxpayer does not have to calculate their income by subtracting expenses from their revenue. However, the taxpayer will have to pay a fixed percentage of the total revenue.

Even though taxpayers do not have to keep detailed accounts of all expenses, they might still want to know about the actual profits or losses. One disadvantage of presumptive taxation is that taxpayers cannot claim expenses and deductions.

Even though it is optional to submit all bills and financial statements while tax filing, maintaining accounts is still a good practice all business management should follow to ensure clarity in the future.

Read More: Filed ITR But Didn’t Get A Tax Refund Yet? Here’s How To Request A Reissue

What Are The Benefits Of Presumptive Taxation?

Let’s understand the benefits of presumptive taxation.

• Taxpayers do not have to maintain detailed books of accounts under Section 44AB for presumptive taxation.

• As the calculation of income is on a fixed percentage, there’s not much calculation and is a simplified way of tax calculation.

• Simplified advance tax payment rules under presumptive taxation with most taxpayers.

What Is The Eligibility Criteria For Presumptive Taxation?

Businesses that meet the following criteria can apply for presumptive taxation.

• Small businesses like retail trade, wholesale trade and other small-scale businesses.

• Businesses with a turnover of up to Rs. 2 crore in a financial year.

• Professionals with a turnover of up to Rs. 50 lakhs in a financial year.

Exclusions

• Professionals listed under Section 44AA(1), like doctors, lawyers, accountants, etc.

• Businesses doing agency work.

• Life insurance agency.

• Businesses that earn income through commission or brokerage.

If a business decides to opt out of the scheme, it cannot rejoin for the next 5 years.

Read More: Union Budget 2024: Revised Income Tax Slabs Under New Regime by FM Sitharaman

Rates For Presumptive Taxation

Business taxpayers' rates of taxable income consideration depend on the type of receipt.

• Consideration for cash receipts is 8% of the total amount received.

• For non-cash payments, the rate of consideration is 6%.

If a business has a total revenue of Rs. 1 crore, with cash receipts of 30 lakhs, the taxable income under the presumptive tax rule would be Rs. 6.6 lakhs. Rs. 2.4 lakhs consideration for cash receipts and Rs. 4.2 lakhs consideration for non-cash payments.

Conclusion

Presumptive taxation is a beneficial scheme for businesses as it provides a hassle-free way to do tax filings and significantly reduces the tax burden. Even though it is not necessary to maintain the main books of accounts under this, they should still understand the necessity of maintaining it as it will come in handy in the future in case of any doubts or confusion related to payments.

To learn more about presumptive taxation, click here.