Small Business Tax Tips

Small business tax tips for business owners to avoid tedious work of bookkeeping and undergoing Tax Audits. If you are a small business owner, knowing about section 44AD and 44AE may help you in so many ways.

As per the Income tax Act, 1961, small business owners can determine the chargeable income on presumptive basis.

Advance-Tax Calculation Small Business Tax Tips

As per these provisions, you are expected to offer the minimum prescribed amount as business income. In case you intend to offer income lesser than the amount prescribed therein, you have to maintain proper books of accounts and get it audited by a Chartered Accountant under section 44AB.

In this article let's see how to determine the Presumptive Income of your business.

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Points to remember while calculating Minimum Income as per 44AD and 44AE

All the deductions allowable under sections 30 to 38 shall be deemed to have been already given full effect to and no further deduction under those sections shall be allowable.

However, in the case of firm, any interest on capital and remuneration to partners shall be allowed as further deduction subject to the ceiling specified.

Depreciation for each of the relevant Assessment Year shall be deemed to be had been allowed in arriving at the aforesaid minimum income and the written down value of the assets of the business shall accordingly be calculated.

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Small Business Tax Tips - What are benefits you can enjoy?

The provisions of section 44AA and section 44AB shall not apply in so far as they relate to the above business and in computing the monetary limits under those sections, the gross receipts or the income from the above business shall be ignored.

It means, you need not maintain books for your business.

In case income offered is lower than the above minimum income, you should maintain proper books of accounts and get your books audited.

Payment of Advance Tax is not required in the case you are covered by Section 44AD.

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Presumptive Business Income u/s 44AD from AY 2011-12

Businesses Not Eligible

All the businesses given below are not eligible to use the section 44AD as per Income Tax Act, 1961.

  • plying, hiring or leasing goods carriages referred to in section 44AE,
  • Agencies, Businesses having Income by way of Commission and Brokerage,
  • Professions referred to in Section 44AA(1).

All other businesses are eligible for 44AD.

Applicability of the section 44AD

  1. Applies to you if you are assessed as Individual, HUF or a Firm (other than LLP). And you should not be claiming exemption under sections 10A, 10AA, 10B, 10BA or deduction under Chapter VIA-C.

  2. Your business Turnover should be less than Rs.60 lakhs for the year ending 31.03.2011 onwards (Rs.1 Crore for the year ending 31.03.2013 onwards).

Minimum Income to be offered

8% of the Total Turnover or Gross Receipts, or more has to be offered as your business income.

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Small Business Tax Tips Presumptive Business Income u/s 44AE from AY 2011-12

All the businesses given below are eligible to use the section 44AE as per Income Tax Act, 1961.

  • plying, hiring or leasing goods carriages referred to in section 44AE,

Applicability of the section 44AD

  1. You should not Own not more than ten goods carriages at any time during the Previous Year, to make use of 44AE.

Minimum Income to be offered

As per 44AE, you have to offer the Minimum Income as given below.

  • Rs.5,000 p.m. for heavy goods vehicles,
  • Rs.4,500 p.m. for other vehicles.

If the vehicle is owned for part of a month, it is treated as a whole month.

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Civil Construction Business Presumptive Income u/s 44AD upto AY 2010-11

If you own a business of,

  • Civil construction or
  • Supply of labour for civil construction,

and your turnover does not exceed Rs.40 lakhs then you can make use of 44AD.

As per 44AD, you have to offer 8% of the Gross Receipts received or receivable by you as the Minimum Income.

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Plying, Hiring or Leasing Goods Carriages Presumptive Income u/s 44AE

If you own a business of,

  • Plying, Hiring or Leasing such goods carriages, and
  • the no of goods carriages owned by you at any time during the Previous Year is not more than ten,

then you can make use of Section 44AE.

As per 44AE, you have to offer the Minimum Income as given below.

  • Rs.3,500 p.m. for heavy goods vehicles,
  • Rs.3,150 p.m. for other vehicles.

If the vehicle is owned for part of a month, it is treated as a whole month.

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Small Business Tax Tips Retail Business Presumptive Income u/s 44AF upto AY 2010-11

If you own a business of,

  • Retail Trade in any goods or merchandise, and
  • if your turnover does not exceed Rs.40 lakhs then you can make use of 44AF.

As per 44AF, you have to offer 5% of the Total Turnover in the previous year as the Minimum Income.

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