What is the presumptive taxation scheme in 2023?

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The presumptive taxation scheme is a simplified method of calculating income tax for small businesses and professionals. Under this scheme, the assessee’s income is presumed to be a certain percentage of their turnover or gross receipts, and they are not required to maintain detailed books of account. This can be a significant benefit for small businesses, as it can save them time and money on accounting and compliance.

Categories of taxpayers:

The presumptive taxation scheme is available to two categories of taxpayers:

  • Small businesses: This category includes resident individuals, Hindu Undivided Families (HUFs), and partnership firms (other than limited liability partnerships) whose gross total turnover does not exceed Rs. 3 crore in a financial year.
  • Small professionals: This category includes resident individuals or partnership firms (other than limited liability partnerships) who engage in any profession specified in Section 44AA(1) of the Income Tax Act, 1961, and whose total gross receipts do not exceed Rs. 75 lakh in a financial year.

The presumptive income rate for small businesses is 8% of their turnover or gross receipts. However, if the assessee’s cash receipts during the fiscal year are less than 5% of their total gross receipts or turnover, then the presumptive income rate is 6%.

The presumptive income rate for small professionals is 6% of their gross receipts.

The assessee can opt for the presumptive taxation scheme for a particular financial year by filing an election with the Income Tax Department. The election can be made in Form 60A.

Once the election is made, the assessee will be taxed on the presumptive income for that financial year. However, the assessee is free to declare a higher income if they so choose.

Benefits to opting for the presumptive taxation scheme:

There are a number of benefits to opting for the presumptive taxation scheme. These include:

  • Simplified tax calculation: The assessee’s income is presumed to be a certain percentage of their turnover or gross receipts, so there is no need to maintain detailed books of account. This can save the assessee time and money on accounting and compliance.
  • Lower tax liability: The presumptive income rate is lower than the normal tax rates, so the assessee’s tax liability will be lower.
  • No penalty for late filing of returns: The assessee is not liable to penalty for late filing of returns if they opt for the presumptive taxation scheme.

Drawbacks to opting for the presumptive taxation scheme:

However, there are also some drawbacks to opting for the presumptive taxation scheme. These include:

  • No deduction for expenses: The assessee is not allowed to claim any deductions for expenses under the presumptive taxation scheme. This means that the assessee’s taxable income will be higher than it would be if they were to file their return under the normal tax regime.
  • Losses cannot be carried forward: The assessee cannot carry forward losses incurred under the presumptive taxation scheme. This means that the assessee will not be able to offset these losses against future profits.

Overall, the presumptive taxation scheme can be a good option for small businesses and professionals who want to simplify their tax calculation and reduce their tax liability. However, it is important to weigh the benefits and drawbacks of the scheme before making a decision.

Here are some additional points to keep in mind about the presumptive taxation scheme:

  • The assessee must have a PAN (Permanent Account Number) and must file their income tax returns on a regular basis.
  • The assessee must maintain a simple record of their income and expenses.
  • The assessee must comply with all other applicable tax laws.

If you are considering opting for the presumptive taxation scheme, you should consult with a tax advisor to discuss your specific circumstances. You may find some best Taxation consultancy services, Financial consulting services and Income tax return services in Delhi.

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