Finance minister Nirmala Sitharaman has elevated the edge limits for availing presumptive taxation, a transfer that can profit quite a few small companies and professionals.
“Micro enterprises with turnover of as much as ₹2 crore and sure professionals with turnover of as much as ₹50 lakh can avail the good thing about presumptive taxation. I suggest to supply enhanced limits of ₹3 crore and ₹75 lakh, respectively, to the tax payers whose money receipts are not more than 5%,” the finance minister mentioned in her price range speech.
“The presumptive tax regime is a simplified means for submitting tax returns for smaller companies and professionals. The idea of presumptive taxation is ‘what you declare in the returns is treated as your income’. It takes away the burden on the tax-payer to declare business-related expenditure, and so forth. This will ease compliance burden for lot of small companies and professionals,” said Aditya Sesh, founder and managing director, Basiz Fund Services.
Presumptive taxation for businesses is covered under section 44AD of the Income Tax Act. As of now, businesses which have a revenue of up to ₹3 crore can avail the benefit of presumptive taxation, as long as not more than 5% of this revenue is in cash receipts.
For example, a businessman who has a revenue of ₹3 crore (the maximum limit) and meets the eligibility criteria of presumptive tax is liable to pay tax on only 8% of the revenue, or ₹24 lakh.
Similarly, professionals earning up to ₹75 lakh in a financial year will now be eligible for presumptive taxation, as long as their cash receipts are within the 5% cap of overall turnover.
For example, let’s consider a lawyer earning ₹75 lakh in a financial year from his practice; he will be liable to pay tax on 50% of his gross receipts or ₹37.5 lakh. Not just an individual, but partnership firms and hindu undivided family (HUF) can also avail the presumptive tax mechanism. It excludes limited liability partnerships (LLPs).
“The 5% cash limit ensures that there is more transparency. Allowing more businesses to use presumptive tax mechanism will improve the ease of doing business for smaller enterprises,” says Ashok Shah, founding associate of NA Shah Associates.
“The enhancement of presumptive tax limits will scale back the compliance burden for small companies and immediate them to avail of this selection. Small enterprise house owners don’t want to take care of separate checking account statements, separate money information, gross sales information or audit books to fulfil the compliance necessities. If they meet the improved eligibility standards, they’ll merely undergo the presumptive tax mechanism,” mentioned CA Abhishek Soni, co-founder of Tax2win.
Under presumptive taxation, small companies and professionals are exempted from sustaining their books of accounts or getting audits carried out. Otherwise, companies are required to take care of books of accounts as per the IT Act.
While the transfer will profit extra companies and professionals, there’s a cooling-off interval of 5 years in the event that they decide out of the scheme halfway. So, for those who have been to go for the scheme in FY24, FY25 and FY26 however not in FY27, then you’ll be able to’t avail presumptive taxation for 5 years from FY28-FY32.
It can be vital to keep in mind that when you go for presumptive taxation, you can’t declare tax deductions which can be in any other case obtainable to a daily taxpayer.
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