1. Home
  2. Publication
  3. Article
CA V.B. Prabhu Verlekar

CA V. B. Prabhu Verlekar

Pay income tax without maintaining account books

Date: 27-May-19

A taxpayer involved in business or profession has to compulsorily maintain books of accounts for his business such as cash book, ledgers, stock registers, etc. on a regular basis and which needs to be supported with documentary evidence. Further he has to get them audited by a Chartered Accountant. For this, substantial expenditure is required to be incurred for maintaining books of accounts and for audit fees. Income from business is declared in the tax return after making specified adjustments under the Income Tax Act, on the basis of annual Profit and Loss Account and the Statement of Assets and Liabilities drawn at the end of the year which is called Balance Sheet.

However, if you are a small business or professional, then there are certain special provisions in the Income-Tax Act which allows you to declare income on presumptive basis without the hassle and trouble of maintaining books of accounts, getting them audited by a Chartered Accountant and also saves you from the related costs.

This is applicable to Small Businesses under section 44AD, Professionals under section 44ADA and Transporters under section 44AE. These Schemes are optional at the discretion of the taxpayer.

Presumptive Scheme for Small Businesses (u/s 44AD)

This scheme applies to any resident individual, HUFs or partnership firm, who carry on any business like bakery, vendors of fish, fruits, vegetables, food, shop-keepers, all types of contractors, workshops and small industries, operators of taxis and buses etc. provided total turnover or gross receipts in a financial year does not exceed Rs. Two Crores. The profit from the business is deemed to be 8% of the total turnover, chargeable to tax which needs to be offered as profit of business. He can declare high percentage than this. In case amounts are received by crossed account payee cheques/drafts or through credit/debit cards, deemed profit will be taken at 6%. He is not eligible to claim deductions for any other expenses such as cost of purchases, administrative expenses, interest costs, depreciation etc. For example, if your business turnover is Rs. 2 crore, income from business will be calculated @ 8% of Rs. 2 crore i.e. Rs. 16 Lakhs. If you are a Goan, married under Portuguese Civil Code, this will be split between husband and wife in equal shares i.e. Rs. 8 Lakhs each.
However, in case of a firm, deduction in respect of salary and interest to partners shall not be allowed from the presumptive income computed above.

Presumptive Scheme for Professionals (u/s 44ADA)

In case of professionals, like doctors, lawyers, engineers, technical consultants, chartered accountants, interior decorators, company secretaries etc. whose total gross receipts does not exceed Rs. 50 Lakhs in a year are covered under this Scheme. A sum equal to 50% of the total gross receipts on account of such profession will be deemed to be profit or gains of such profession. No other expenses incurred for carrying on profession such as office expenses, travelling or depreciation can be claimed. This scheme is applicable to resident individuals and partnership firms. For example, in-case of a doctor or lawyer whose annual gross receipts from profession is Rs. 40 Lakhs, his income from profession will be calculated @ Rs. 20 Lakhs. If he is married under Portuguese Civil Code, this income will be split between the spouses in equal ratio i.e. Rs. 10 Lakhs each.

Presumptive Scheme for Transporters (Section 44AE)

This Scheme applies to any person engaged in the business of plying, leasing or hiring of trucks owning not more than Ten goods vehicles at any time in the previous year including those taken on hire purchase or on instalments. This scheme does not apply to those who operate trucks on hire without owning them.
For light goods vehicle (less than the gross weight of 12MT) Rs. 7,500 per vehicle per month (part shall be considered full month).
For heavy goods vehicle (more than 12 MT gross weight) – Rs. 1,000 per tonne per vehicle per month (part will be considered full month).
He will not be allowed to claim any expenditure towards maintenance and running of vehicle including depreciation.

Implications of opting for presumptive scheme

To compute total taxable income for the year, the income from business and profession computed as above on presumptive basis is aggregated with other income of the taxpayer, if any, such as salary, capital gains, house property, income from investments etc. Thereafter deductions under Chapter VIA and tax rebates under Chapter III such as payments towards life insurance premia, contribution to provident fund u/s 80C etc. can be claimed.
If a person opts for above Presumptive Taxation Scheme, then he is required to follow the Scheme for next five years. If he fails to do so, then he will not be able to opt for this Scheme for next five years.
The entire advance tax on his estimated income should be paid by 15th March.
If the above referred tax payers offer income less than presumptive income as specified above, on the basis of books of accounts maintained, the same are compulsorily required to be audited by a Chartered Accountant under section 44AB irrespective of the monetary limit of turnover.

Date: 27-May-19