Businesses have been grown over the period of time due to general growth of the economy and varied other reasons. But at the same time various numbers of business and service providers, irrespective of their area of operations, earning substantial income are outside the tax net. Presumptive income scheme has been introduced to bring such business & service providers within tax net and at the same time, there is lower compliance cost for such tax payer and lower administrative burden on revenue too. From the A.Y. 2011-12 various schemes of presumptive taxation as applicable to small business has been consolidated under substituted section 44AD and whereas section 44AF (applicable to retail trade) has been deleted. Now scheme of presumptive taxation (other than presumptive taxation scheme applicable to non-resident) for small businesses is operated by two sections 44AD and 44AE.

Section 44AD

• Applicable:Any business except plying, hiring or leasing goods carriages referred in S. 44AE and whose turnover is less than Rs. 60 lakhs during the previous year.
• Applicable to class of taxpayer:Any resident individual, HUF, partnership firm excluding LLPs and has not claimed deductions u/s 10A, 10AA,10B, 10BA, 80HH to 80RRB in the relevant assessment year.
• Presumptive or estimated income:Sum equal to 8% of the total turnover or gross receipt of the assessee.
• Higher or lower income: Assessee at his option can claim such higher/lower amount earned by him. Assessee can also claim to have earned income lower than specified amount, subject to fulfillment of conditions as to maintenance of books of account etc.
• Maintenance of books of account:Unlike provision contained in Ss. 44AD(4) (as stood prior to its replacement) & 44AE(4), no specific provision exempting from maintenance of books of account and other documents as prescribed u/s 44AA, when income is offered on presumptive basis. However in case assessee claims that he has earned income lower than specified percentage and such income is more than maximum amount not chargeable to tax, Ss. 44AD (5) and 44AA (2) (iv), mandates him to maintain books of accounts and other documents as specified u/s 44AA, get them audited from the accountant and furnish report as required u/s 44AB.
• Deduction from presumptive income:No deduction is allowable under provisions of sections 30 to 38. However in case of partnership firm remuneration to partner and interest on partner’s capital is allowable. For the computation of allowable partner’s remuneration, book profits would be deemed income less interest on capital. Further written down value of any depreciable asset of such business shall be calculated as if depreciation has been actually allowed.
• Advance tax:Assessee offering income on presumptive basis provisions of Chapter XVII-C pertaining to Advance tax is not applicable to such assessee. Hence such assessee is not required to pay advance. However S. 44AE(4) may give rise to various peculiar unintended issues.

Section 44AE

• Applicable:Assessee engaged in business except plying, hiring or leasing goods carriages and who owns not more than 10 goods carriages anytime during the previous year. However unlike s. 44AD, there is no condition of maximum turnover of the assessee. Assessee shall be deemed to owner of goods vehicles taken on higher purchase or on installment, whether whole or part of the amount is payable, when such vehicles are in possession of such assessee.
• Applicable to class of taxpayer:Any assessee.
• Presumptive or estimated income:Presumptive or estimated income is dependable on the nature of goods vehicle:

— Heavy goods vehicle Rs. 5,000 per heavy goods vehicle for every month or part of the month;

— Other than heavy goods vehicle Rs. 4,500 per such goods vehicle for every month or part of the month.

Terms goods carriage and heavy goods vehicle shall have meaning as per Motor Vehicles Act, 1988.

• Higher or lower income: Assessee at his option can claim such higher/lower amount earned by him. Assessee can also claim to have earned income lower than specified amount, subject to fulfillment of conditions as to maintenance of books of account etc. and assessment of such assessee would be made u/s 143(3) ie scrutiny assessment.
• Maintenance of books of account:Assessee offering income on presumptive basis is not required to maintain books of account & other documents as prescribed u/s 44AA and audit u/s 44AB. However in case assessee claims that he has earned income lower than specified amount, Ss. 44AE(7) and 44AA(2)(iii), mandates him to maintain books of account and other documents as specified u/s 44AA, get them audited from the accountant and furnish report as required u/s 44AB.
• Deduction from presumptive income:No deduction is allowable under provisions of sections 30 to 38. However in case of partnership firm remuneration to partner and interest on partner’s capital is allowable. For the computation of allowable partner’s remuneration, book profits would be deemed income less interest on capital. Further written down value of any depreciable asset of such business shall be calculated as if depreciation has been actually allowed.
• Advance tax:No specific provision exempting assessee’s from payment of advance tax.