Benefits of Presumptive Taxation scheme | Fusion - WeRIndia

A presumptive taxation scheme, as the name suggests allows you to pay income tax on the presumptive income of a business entity or a professional. The scheme intends to help small businesses by easing the taxation process.

Businesses or professionals under this scheme can pay income tax on a certain percentage of their total revenue.

The presumptive taxation scheme is covered under section 44AD, section 44ADA, and section 44AE of the income tax act.

Any business with a revenue of less than ₹2 crores and individuals who are engaged in certain professions like medicine, engineering, accountancy etc., with revenue of not more than ₹50 lakhs can avail of the scheme.

The presumptive taxation scheme has the following benefits:

Generally, business entities are required to maintain books of accounts. However, it is difficult for small businesses to hire an accountant to maintain books of accounts and conducting tax audits. The presumptive taxation scheme helps such small businesses.

It eases the income tax filing process. Those who opt for the presumptive taxation scheme need to fill in ITR-4, which is simple. Besides, it can be filled in easily.

There is no need to pay income tax quarterly under this scheme. Taxpayers, who opt for the scheme, can pay their advance tax only once by March 15 of the financial year.

Professionals who opt for the scheme can declare 50% of their total annual income under Section 44 ADA. They are allowed to pay tax on their net income after the deduction. That means they can reduce their taxable income to half.

At the same time, business entities can also reduce their tax burden. The taxation depends on the mode of payment under section 44AD. A tax rate of 6% is applicable for the receipts received digitally, whereas an 8% tax rate is applicable for cash receipts.

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