How presumptive taxes can help you to save taxes?

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The Income Tax Act of India has Many Scopes and Benefits. Out of the many criteria of taxing various persons, one is taxation of specific business under Presumptive Basis. For certain business the Govt. gives an option to opt for lower taxation if the required conditions are met. 

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What is Presumptive Taxation?

Presumptive’ as the word suggest means presumed in the absence of further information. Ergo, Presumptive Taxation is a scheme to benefit Eligible Persons by imposing taxation on them by determining their income on a presumptive basis. It is covered under various sections of Income TaxAct,1961 like Section 44B, 44BBA, 44BB, 44BBB, 44AD and 44AE. 

Few of the major and widely applied section are explained as under :-

SECTION 44B

The provision of this section is for computing profit and gains of Shipping Business in case of a Non Resident

Conditions :

  1. Assessee should be a Non-Resident.

  2. Engaged in the business of operation of ships.

Sum equal to 7.5% of the Turnover should be treated as Income of the Assessee.

Turnover should be aggregate of following:

  1. Amount paid or payable, whether in India or outside India, to the assessee or any person on his behalf for carriage of passengers, livestock, mail or goods, shipped at any port in India.

  2. Amount received or deemed to be received in India by or on behalf of the assesee for carriage of passengers, livestock, mail or goods shipped at any port outside India.

However,

  1. Section 172 overrides this section.

  2. This section overrides section 28 to 43A. 

SECTION 44BBA

The provision of this section is for computing profit and gains of Business of operation of Aircraft in case of a Non Resident

Conditions :

  1. Assessee should be a Non-Resident.

  2. Engaged in the business of operation of aircrafts.

Sum equal to5% of the Turnover should be treated as Income of the Assessee.

Turnover should be aggregate of following:

  1. Amount paid or payable, whether in India or outside India, to the assessee or any person on his behalf for carriage of passengers, livestock, mail or goods from any place in India.

  2. Amount received or deemed to be received in India by or on behalf of the asseseeon account of the carriage of passengers, livestock, mail or goods from any place outside India.

However, this section overrides provisions of section 28 to 43A. 

SECTION 44AD

The provision of this section is for computing profit and gains of Business. 

As Per this section, Eligible Assessee carrying on Eligible Business can avail the benefits of provisions of this section. i.e.:

  1. 8% of the total turnover or gross receipts of the assessee in the previous year will be treated as his income for that previous year

  2. Exemption from maintenance of books of accounts under section 44AA.

However,

  1. He can voluntarily declare a higher income.

  2. And if he declare his income lower than the deemed income then he has to maintain books of accounts under section 44AA irrespective of turnover and income. 

The deemed income is chargeable under the head “Profits and Gains of Business & Profession.” Assessee can submit return in ITR-4S and is exempted from payment of advance Tax relating to such business. 

Eligible Assessee :

Individual, Hindu undivided Family, Partnership firm (not being a Limited Liability Partnership Firm) who has not claimed Deduction Under Section 10A,10AA,10B,10BA, 80HH to 80 RRB. 

Eligible Business:

All the business other than :

  1. Business of plying, hiring or Leasing of Goods Carrier (All this is Covered in Section 44AE).

  2. Whose Gross Turnover exceeds 1 Crore in the Previous year.

  3. Person carrying on any profession.

  4. Person carrying on agency business or having income in nature of commission & brokerage. 

SECTION 44AE

The provision of this section is for computing profit and gains of Business of Tax payer engaged in Transport Business (i.e. Plying, Hiring or Leasing Goods Carriage.) 

Eligible Assessee :

  1. All assessee whether Resident or Non-Resident.

  2. Assessee does not own more than 10 trucks at any time during the previous year. 

Deemed Income :

  1. In case of Heavy Trucks (weighing more than 12000 kg/12ton):

  • Rs. 5000 per month per truck.

  • Part of the month is considered full. 

  1. In case of Trucks other than Heavy Trucks (weighing 12000 kg/12ton or less):

  • Rs. 4500 per month per truck.

  • Part of the month is considered full..

OR

Declared Income; whichever in Higher. 

Assessee can submit online income tax returns in ITR-4S and is exempted from payment of advance Tax relating to such business. 

To Conclude:

The above specified businesses can opt for presumptive taxation and show their taxable income at the rates prescribed. This will reduce the burden of taxes as the assesses can directly pay of the taxes on such taxable income determined. It also reduces the complexity of accounting and book-keeping as whatever may be the profit, taxes are to be paid at the specified rates.

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