Nifty99000 100%

Sensex99000 100%

Article rating: 4.2
Article rating: 4.8
Article rating: 4.3
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: 4.0
Article rating: 4.0
Article rating: No rating
Article rating: 3.0


Tax on a presumptive basis

Author: AN Shanbhag Sandeep Shanbhag/Wednesday, August 22, 2018/Categories: Tax, Expert View

Tax on a presumptive basis

To provide relief to individuals and small businesses from maintaining regular books of accounts and audits, the Income Tax Act offers the presumptive taxation scheme under sections 44AD, section 44ADA and section 44AE.

As per the presumptive taxation scheme, the individual or the business can declare the income at a prescribed rate under the sections given below:

Sec. 44AD

Any resident individual, HUF or a partnership firm (not LLP), regardless of the nature of its activity, is eligible to presumptive income determination provisions if his total turnover or gross receipts in the fiscal does not exceed Rs 2 crore.

The presumptive income is 8 per cent of the total turnover or gross receipts. The assessee can voluntarily declare a higher income. No deduction u/ss 30 to 38 and also for depreciation is allowed. TDS as well as advance tax payment will not apply to any such eligible entity.

To promote digital transactions and to encourage small unorganised business to accept digital payments, the rate has been reduced to 6 per cent where total turnover or gross receipts are received through banking channels. The existing rate of deemed profit of 8 per cent will apply on the total turnover or gross receipts received in any other mode.

Once an eligible assessee declares profit for any year in accordance with these provisions, he is expected to continue doing so for at least 5 successive years. If he fails to do so for any of the year during this period, he shall not be eligible to claim the benefit of the provisions of this section for 5 years subsequent to the year for which the profit has not been declared in accordance with these provisions. Such an assessee will have to maintain books of accounts and moreover, he will have to get these audited if Sec 44AB is applicable to him.

However, since the turnover limit has now been enhanced to Rs 2 crore, the eligible assessee shall be required to pay advance tax. To keep the compliance minimum in his case, he may pay the total advance tax by March 15. Provision to charge interest @1 per cent u/s 234C in the case of any shortfall in payment of advance tax has been extended to Sec 44AD.

Now, a difficulty: Suppose the eligible assessee has more than one eligible business?

Sec. 44ADA

This section provides for estimating the income by a resident individual, HUF or partnership firm (but not an LLP) who is engaged in a profession such as legal, medical, engineering, architecture, accountancy, technical consultancy, interior decoration or any other notified profession, whose total gross receipts do not exceed Rs 50 lakh in a year or a higher amount voluntarily declared by the assessee. The estimated income is 50 per cent of the total gross receipts. No deductions u/ss 30 to 38 or for any depreciation will be allowed. The assessee has the option of adopting the normal method of taxation, if he feels that it is advantageous for him to do so.

The concession of paying advance tax in a single instalment on or before March 15 is also applicable to those covered by 44ADA.

Sec 44AE

Provisions of Sec 44AE are similar to those of Sec 44AD and are applicable to businesses of plying, hiring or leasing goods carriages. The assessee may be any person, resident or NRI, who owns not more than 10 goods carriages. He can presume his income to be Rs 7,500 for every month or part of a month for all types of goods carriage vehicles, heavy or light.

Sec. 44AE was amended in fiscal 2018 to include heavy goods vehicle with more than 12mt gross weight (unladen weight). For these, the income would be deemed as Rs 1,000 per tonne per month or part of a month for each goods vehicle.

For all those who fall under these sections, presumptive tax is only an option. Those who maintain books of account and furnish audited accounts if applicable, may pay tax and advance tax at the normal rates, if they choose to do so.

The authors, A.N. and Sandeep Shanbhag, are leading financial advisors. Write to them at

Print Rate this article:

Number of views (598)/Comments (0)

AN Shanbhag Sandeep Shanbhag
AN Shanbhag Sandeep Shanbhag

AN Shanbhag Sandeep Shanbhag

Contact author

Leave a comment

Add comment



Ask the Finapolis.

I'm not a robot
Dharmendra Satpathy
Col. Sanjeev Govila (retd)
Hum Fauji Investments
The Finapolis' expert answers your queries on investments, taxation and personal finance. Want advice? Submit your Question above
Want to Invest



The technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The information and views presented in this report are prepared by Karvy Consultants Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Consultants nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies is required to disclose his/her individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Consultants Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures or other derivatives related to such securities.

Subscribe For Free

Get the e-paper free