Some implications if you are planning to opt for the presumptive taxation scheme to file your tax returns

If you are planning to opt for the presumptive taxation scheme (PTS) to file your tax return from the next assessment year (AY), AY2017-18, make sure you pay the entire advance tax by 15 March. Businesses and professionals who opt for PTS are not required to maintain books of account. Besides that, one can pay the tax on the basis of ‘presumed’ rate of income, out of total turnover or receipts. In the Finance Act, 2016, PTS was extended to businesses with a total turnover of less than Rs2 crore in a financial year (FY). The earlier limit was Rs1 crore.

Eligible professionals, with gross receipts of less than Rs50 lakh were also brought under the ambit of PTS by inserting a new section, 44ADA, in the Act. The Finance Bill 2017 also proposes to reduce the rate at which businesses can declare their incomes for AY2018-19—to 6% from 8% currently.

Who can opt for PTS

Resident Hindu Undivided Families (HUFs) and resident partnership firms can opt for this scheme. However, limited liability partnership (LLP), businesses that claim benefits for being located in special economic zones or backward areas, and those whose income is from commission or brokerage fees (such as insurance agents or mutual fund advisers) cannot adopt this scheme.

From AY2017-18, the scheme will cover businesses with a total turnover of less than Rs2 crore during a financial year. Those in the business of plying, hiring or leasing goods carriages can avail PTS under section 44AE of the Act.

Calculating PTS

When a business opts for PTS, if the above mentioned conditions are satisfied, it can estimate its income at 8% of the total turnover for AY2017-18. For instance, if the turnover of the business was Rs1.5 crore in FY2016-17, its income chargeable to tax under PTS would be Rs12 lakh (8% of Rs1.5 crore). However, the assessee is allowed to declare income at a higher rate than the minimum prescribed limit of 8% of the total turnover.

Apart from businesses, professionals such as doctors, lawyers, architects, interior designers and others—who are governed or regulated by an institute or body—can also choose the PTS to file their returns. However, to do this their gross receipts should be less than Rs50 lakh per annum. For these professionals, 50% of the total receipts during the fiscal will be considered as profit and get taxed accordingly. Professionals, too, can voluntarily declare their income at a higher rate than the mandatory 50% of total receipts.

Opting out of PTS

If a business opts for PTS in any assessment year, then it has to continue with the scheme for next 5 assessment years. If it opts out of PTS earlier, then PTS will not be available for it for the next 5 assessment years.

Let us say a business opts for PTS under section 44AD of the Act for AY2017-18, and then for AY2018-19 and 2019-20 too. But for AY2020-21, it opts out. In this case, the business will not be able to opt for PTS for the next 5 assessment years, i.e., from AY2021-22 to AY2025-26.

Further, the business would be required to maintain books of account for this period and is also liable for tax audit as per section 44AB from the assessment year in which it opts out of the PTS, if its total income exceeds the maximum amount not chargeable to tax.