Are you a professional falling into the highest tax bracket? Are you worried about paying a hefty amount as income tax? If yes, it’s about time you let your worries rest and file your returns under the presumptive taxation scheme. If you are a professional, freelancer or small business owner and your annual income for the financial year is less than Rs 50 lakh of gross receipts, you can avail benefits of this taxation scheme.
Under the special scheme of Presumptive Taxation Scheme (PTS), you can file your tax returns as well as pay your taxes based on ‘presumed’ income. This simply means that businesses and professionals can calculate the income under Section 44ADA and 44AD of the I-T Act, respectively, on an estimated basis at a minimum prescribed rate.
Importance of filing returns under Presumptive Taxation Scheme
Compliance Reduction: Presumptive taxation scheme is specifically beneficial to small businesses with low resources. If you are a small business owner and you do not have the time, energy and money to hire a full time, in-house accountant to maintain the book of accounts, this scheme is for you. Also, those who adopt this scheme will not have to pay any amount as advance tax. They will have to file their tax returns in ITR 4 (ITR 4s was filed earlier but it has been discontinued and replaced by ITR 4 from FY 2016-17), which is a simple form where you are asked less information. This reduction of compliance was introduced to give a boost to small businesses.
Simplification of Returns: The next benefit of e-filing returns under the presumptive taxation scheme is simplification of returns, which is beneficial for people with low turnover. The required paperwork, which was a major hindrance for professionals and small business owners, is scrapped off in this tax scheme. This will, in turn, reduce the amount of effort that you, as a professional or business owner, need to estimate the total income for the year and then file your tax returns on this. You will not have to maintain a book of accounts and a profit and loss statement and then get them audited which is otherwise required to prepare and file your income tax returns.
Payment of Advance Tax at once: The next in the list of benefits of prevailing the presumptive taxation scheme is the payment of Advance tax. In this scheme, you can pay 100 percent Advance tax by 15th March of every year for business. You don’t have to comply with payment of such taxes in the quarterly instalment due dates (June, September and December) which otherwise people not opting for this scheme have to keep in mind and pay their due taxes within the given time.Also, if you are running more than one business you will have to choose this scheme for each business separately. For example, if you have 2 businesses and you have opted for this scheme for only one of your businesses under Section 44AD, you will be given the relief of not maintaining the book of accounts for only this particular business. You will have to maintain the book of accounts for the business for which you haven’t opted for the presumptive taxation scheme. The same rule applies for payment of Advance tax. You will have to pay advance tax for the other business in the required quarterly instalments. You can avail the relief of paying the total amount of Advance tax once in a year (15th March) only for the business that you have chosen for presumptive taxation scheme.
Moreover, you are not eligible to adopt this scheme if you have claimed tax deduction under Section 10, 10A, 10B, Section 10 BA or under any section from Section 80HH to Section 80RRB in the year for which you are filing your taxes.
Opting presumptive taxation scheme can save you a lot of time, which you have to otherwise spend on maintaining books of accounts and getting them audited and then filing the ever so hectic ITR form that the regular taxpayers have to deal with. A simple one-page ITR form for people opting this scheme is always better than 2-3 pages of things that you sometimes don’t relate to.
H&R Block has a dedicated team of tax professionals who are highly qualified and equally efficient when it comes to business tax filing. Get your taxes filed with us for a hassle-free experience.
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Chetan Chandak (B.Com, LLB)
Chetan is the Head of Tax Research at H&R Block (India) with an experience of more than a decade in tax advising. He is also a regular contributor for some of the leading news publications in India such as Economic Times, Financial Express and Money Control. Professionally, Chetan is fascinated by international taxation and expat-related tax research.