Increase in threshold limits for presumptive taxation schemes u/s 44AD and section 44ADA
Under the existing provisions of Section 44AD of the Income Tax Act 1961 a presumptive income scheme is provided for small businesses. This scheme applies to certain resident assessees (i.e.,an individual, HUF or a partnership firm other than LLP) carrying on eligible business and having a turnover or gross receipt of two crore rupees or less.
Under this section 44AD scheme, a sum equal to 8% or 6% of the turnover or gross receipts is deemed to be the profits and gains from business subject to certain conditions. However, if assessee claims to have earned higher sum than 8% or 6%, then that higher sum is taxable.
Likewise, Section 44ADA provides for a presumptive income scheme for small professionals. This scheme applies to certain resident assessees (i.e., an individual, partnership firm other than LLP) who are engaged in any profession specified in section 44AA, and whose total gross receipts do not exceed fifty lakh rupees in a previous year.
Under Section 44ADA scheme, a sum equal to 50% of the gross receipts is deemed to be the profits and gains from business. If assessee has claimed to have earned higher sum than 50%, then that higher sum istaxable.
Under section 44AB of the Act, every person carrying on business is required to get his accounts audited, if his total sales, turnover or gross receipts, in business exceeds one crore rupees in any previous year. The limit was raised to ten crore rupees by the Finance Act 2021 where at least 95% of receipts/payments are in non-cash mode. In case of a person carrying on profession he is required to get his accounts audited, if his gross receipts in profession exceeds, fifty lakh rupees in any previous year.
Those opting for and fulfilling the conditions laid in the presumptive scheme are exempt from audit under this section.
Presumptive Taxation u/s 44AD and section 44ADA for AY 2024-25 onwards
In the Union Budget 2023-24, the Government has proposed the following increases in the threshold limits for presumptive taxation Scheme in section 44AD and section 44ADA of the Act
| Section 44AD |
For eligible business, where the amount or aggregate of the amounts received during the previous year, in cash, does not exceed five per cent of the total turnover or gross receipts, threshold limit would be three crore rupees in place of existing Rs. one crores. |
| Section 44ADA |
For specified professions, where the amount or aggregate of the amounts received during the previous year, in cash, does not exceed five per cent of the total gross receipts, the threshold limit would be now seventy-five lakh rupees in place of existing fifty lakhs rupees |
Note:
1. The receipt by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the receipt in cash.
2. Provision of section 44AB of the Act shall not apply to the person, who declares profits and gains for the previous year in accordance with the provisions of sub-section (1) of section 44AD of the Act or sub-section (1) of section 44ADA of the Act.
These amendments will take effect from 1st April, 2024 and will accordingly apply to the assessment year 2024-2025 and subsequent assessment years.