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. 44ADA 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.

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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Presumptive Business Income u/s 44AD

Small Business Tax Tips Section 44AD.

Eligible Assessee

  1. Individual, HUF or a Firm (other than LLP), who is resident. 
  2. And you should not be claiming exemption under sections 10A, 10AA, 10B, 10BA or deduction under Chapter VIA-C (Deductions in respect of certain incomes).

Not applicable to

  1. a person carrying on profession as referred to in sub-section (1) of section 44AA;
  2. a person earning income in the nature of commission or brokerage; or
  3. a person carrying on any agency business.

Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with this section, he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of this section.

Eligible Businesses

  • any business except the business of plying, hiring or leasing goods carriages referred to in section 44AE; and
  • whose total turnover or gross receipts in the previous year does not exceed an amount of two crore rupees.

Minimum Income to be offered

8% of the total turnover or gross receipts of the assessee in the previous year on account of such business, 

6% of the total turnover or gross receipts of the assessee in the previous year on account of such business, in respect of the amount of total turnover or gross receipts which is received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed during the previous year or before the due date specified in sub-section (1) of section 139 in respect of that previous year.

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Presumptive Business Income u/s 44ADA

Small Business Tax Tips Section 44ADA.

Eligible Assessee

  1. Individual, HUF or a Firm (other than LLP), who is resident. 
  2. And you should not be claiming exemption under sections 10A, 10AA, 10B, 10BA or deduction under Chapter VIA-C (Deductions in respect of certain incomes).

Eligible Profession

  • is engaged in a profession referred to in sub-section (1) of section 44AA; and
  • whose total gross receipts do not exceed fifty lakh rupees in a previous year.

Minimum Income to be offered

  • a sum equal to 50% of the total gross receipts of the assessee in the previous year on account of such profession or, as the case may be,
  • a sum higher than the aforesaid sum claimed to have been earned by the assessee, 

shall be deemed to be the profits and gains of such profession chargeable to tax under the head "Profits and gains of business or profession"

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Presumptive Business Income u/s 44AE

Small Business Tax Tips Section 44AE.

Eligible Assessee

  • Any assessee who owns not more than ten goods carriages at any time during the previous year,
  • an assessee, who is in possession of a goods carriage, whether taken on hire purchase or on instalments and for which the whole or part of the amount payable is still due, shall be deemed to be the owner of such goods carriage

Eligible Businesses

  • Business of plying, hiring or leasing such goods carriages
  • whose total turnover or gross receipts in the previous year does not exceed an amount of two crore rupees.

Minimum Income to be offered

  • in case of a heavy goods vehicle – Rs.1,000 / ton of gross vehicle weight or unladen weight;
  • in case of other than heavy goods vehicle – Rs.7,500

for every month or part of a month during which the vehicle is owned by the assessee in the previous year or an amount claimed to have been actually earned from such vehicle, whichever is higher

Note: "heavy goods vehicle" means any goods carriage, the gross vehicle weight of which exceeds 12000 kilograms.

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General Points for Presumptive Business Income

Small Business Tax Tips - Section 44AD, 44ADA & 44AE - Presumptive Business Income

  1. Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of those sections, be deemed to have been already given full effect to and no further deduction under those sections shall be allowed.
  2. The written down value of any asset of an eligible business shall be deemed to have been calculated as if the eligible assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.
  3. The provisions of sections 44AA and 44AB shall not apply in so far as they relate to the business referred to in those sections and in computing the monetary limits under those sections, the gross receipts or, as the case may be, the income from the said business shall be excluded.
  4. Notwithstanding anything contained in the foregoing provisions of this section, an assessee may claim lower profits and gains than the profits and gains, if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB.

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