Presumptive Taxation

A professional with gross revenue up to ₹50 lakhs can choose the presumptive taxation scheme, allowing them to declare 50% of their gross revenue as taxable income and pay taxes based on their applicable slab rates. Once this scheme is opted for, they cannot claim any profession-related expenses as deductions.

The ₹50 lakh limit increases to ₹75 lakhs if cash receipts do not exceed 5% of total receipts. Moreover, those choosing this scheme are not required to maintain books of accounts. However, they must file their return using ITR 4 by 31 July of the assessment year and are exempt from audit under Section 44AB. A tax audit is only required if they declare income below the presumptive rate and their income exceeds the basic exemption limit.

Budget 2023 has amended Section 44D and Section 44ADA to revise limits for presumptive taxation from FY 2023-24 (AY 2024-25) as follows:

Section I: Business Entities 

Choosing the Legal Structure . Starting a new venture? One of the initial decisions you'll face is determining the appropriate legal structure for your business. Depending on its nature and size, here are some options:

a. Sole Proprietorship

b. Limited Liability Partnership (LLP)

c. Private Company

d. Public Company

e. Partnership Firm

It's important to note that forming a 'company' isn't mandatory to commence business operations. Each type of legal entity has its own advantages and disadvantages. Incorporating a company, for instance, increases compliance requirements. If your business grows rapidly and becomes challenging to manage, setting it up as a separate legal entity with its own PAN and filing requirements can be beneficial. Alternatively, you may opt to continue operating as a sole proprietor.

The presumptive taxation scheme applies specifically to individuals, Hindu Undivided Families (HUFs), and partnership firms (excluding LLPs). Therefore, selecting the appropriate legal entity is crucial for leveraging these benefits.

Maintaining Books of Accounts

If your business meets any of the following criteria, it is mandatory to maintain books of accounts as per the Income Tax Act:

a. Income exceeds Rs. 1,20,000, or

b. Total sales, turnover, or gross receipts exceed Rs. 10,00,000,

in any of the three immediately preceding financial years.

For individuals and Hindu Undivided Families (HUFs), the criteria have been relaxed. They are required to maintain books of accounts only if:

a. Income exceeds Rs. 2.5 lakhs, or

b. Total sales, turnover, or gross receipts exceed Rs. 25 lakhs,

in any of the three immediately preceding financial years.

Note:

Penalty for non-maintenance of books of accounts

Failure to maintain required accounting records as per the law may result in a penalty of up to Rs. 25,000 under Section 271A.

Tax Audit

Businesses with gross receipts/turnover exceeding Rs. 1 crore in a financial year are subject to a tax audit. However, this limit is raised to Rs. 10 crores if cash receipts and payments do not exceed 5% of the total receipts and payments, respectively.

The tax audit report must be filed electronically via Form 3CD by 30th September of the assessment year. For taxpayers subject to tax audit, the due date for filing the income tax return is 31st October of the assessment year.

While revising a tax audit report is generally not allowed, it can be revised if the accounts themselves have been revised.

Benefits of Presumptive Taxation

If you opt for presumptive taxation under Section 44AD, your net income is assumed to be 8% of your turnover, and you will pay tax on that amount.

If your receipts are in digital (non-cash) form, only 6% of your receipts will be considered as your net income, and you'll pay tax on that amount. However, to qualify for this, you must receive your digital payments before filing your income tax return; otherwise, you'll be taxed at 8% on those receipts.

Key benefits:

• No need to maintain accounting records.
• No audit is required.
• Advance tax must be paid, but instead of quarterly payments, you can pay the entire advance tax by March 31. Taxpayers under the presumptive scheme must pay advance tax by March 15 of the relevant financial year if their income tax liability is expected to exceed Rs. 10,000.