The Finance Bill 2023 proposes raising the presumptive taxation thresholds for micro enterprises (small businesses) and certain professionals to Rs. 3 crore and Rs. 75 lakh, respectively, if their cash receipts during the fiscal year are less than 5% of total gross receipts or turnover.
Clauses 15, 16, and 17 of the Finance Bill 2023 propose raising the threshold limits for presumptive taxation schemes under Sections 44AD (MSMEs/Small Businesses) and 44ADA (Small Businesses) (Professionals).
It has been proposed that, beginning with the fiscal year 2024-25, the gross receipts or turnover threshold limit for eligible businesses under section 44AD be increased from Rs. 2 crore to Rs. 3 crore, and the threshold limit for specified professions under section 44ADA be increased from Rs. 50 lakh to Rs. 75 lakh.
The enhanced new limits will take effect if total cash receipts for the year do not exceed 5% of total gross receipts or turnover. These amendments are intended to make compliance easier and to encourage electronic transactions.
As a result, more micro enterprises will be able to choose presumptive income schemes, reducing the amount of compliance work they must do. It is expected that a greater number of microenterprises will be eligible for presumptive income schemes.
1. At present, Section 44AD of the Income Tax Act provides for a presumptive taxation scheme for the income of small businesses, which applies to certain resident assessees (i.e., an individual, HUF, or partnership firm other than an LLP) who carry on eligible businesses and have an annual turnover or gross receipt of Rs. 2 crore or less. Under this presumptive scheme, profits and gains from business are deemed to be 8% or 6% of turnover or gross receipts, subject to certain conditions. The assessee may, however, declare taxable income greater than 8% or 6%.
2. Similarly, Section 44ADA of the Income Tax Act provides for a presumptive income scheme for small professionals, which applies to certain resident assessees (i.e., an individual or partnership firm other than an LLP) who engage in any profession specified in Section 44AA(1) and whose total gross receipts do not exceed Rs. 50 lakh in a fiscal year. This scheme considers profits and gains from a profession to be a sum equal to 50% of gross receipts. The assessee, however, may declare taxable income in excess of 50%.
3. Section 44AB of the Income Tax Act mandates tax audits for assessees carrying on business or a profession with an annual turnover of more than Rs. 100 lakh (Rs. 10 crore where cash receipts and payments are less than 5%) in the case of business and more than Rs. 50 lakh in the case of a profession. Those who choose and follow the conditions of the presumptive taxation scheme are exempt from tax audit requirements.
4. In order to facilitate compliance and promote non-cash transactions, it is proposed to raise the presumptive scheme threshold limits in Sections 44AD and 44ADA of the Income Tax Act if certain conditions are met:
i) A threshold limit of Rs. 3 crore will apply for eligible businesses where the amount or aggregate of amounts received in cash during the previous year does not exceed 5% of total turnover or gross receipts;
ii) A threshold limit of Rs. 75 lakh will apply under Section 44ADA of the Income Tax Act for professions specified in Section 44AA(1) of the Income Tax Act, where the amount or aggregate of the amounts received in cash during the previous year does not exceed 5% of total gross receipts;
iii) A receipt from a cheque drawn on a bank or a demand drafts drawn on a bank that is not an account payee is considered a cash receipt;
iv) The provisions of Section 44AB of the Income Tax Act will not apply to anyone who declares profits and gains for the previous year in accordance with Sections 44AD(1) or 44ADA(1) of the Income Tax Act, as applicable.
5. These amendments will become effective on April 1, 2024, and will apply to assessment years 2024–25 and onwards.
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What if my cash turnover is 15%, whether I am required to get my account audited/ tax audit?
Yes if your total annual turnover is more than 1 cr, but if your are being assessed as per presumptive taxation scheme then audit applicable if annual turnover is more than 2 cr.
Please clarify about item No. 5 “These amendments will become effective on April 1, 2024 and will apply to assessment years 2024–25 and onwards”. Is this date correct or is it April 1 2023?
Date is correct. See the clause which says “during the previous year” so if it is effective 1st April, 2024 that means you will assess the income of previous year (FY 2023-24) on 1st April 2024 onwards. It was bit confusing but it is clear when they “apply to assessment year 2024-25 onwards”.
I am the partner of a partnership firm with my Wife. We are both doctor. Our Firm Income is 99 lacs from business and 3.5 lacs from Interest of FD in FY-2022-23. We have received 75% cash. Can we go for Presumptive Scheme?
No, you can’t opt for presumptive scheme for FY 2022-23 once your aggregate prof fees crosses 50 lakhs.
How about the same >5% cash receivables applying to total fees of less than 50 lacs
In my scenario as a consultant all my earnings (~20 lacs) are electronic but I did add cash to my account (6 lacs over the entire year, personal money that i got from friends/family who were either giving me cash or just returning any money they had taken). Will I be allowed to file under 44ADA? As the ratio is about 30% cash.
How the amount drawn by the Partner from Partner Ship firm which files return under section 44AD, is taxed at the Hands of Partner? We have seen some judgments regarding individuals filing return under 44AD, where the tribunals did not allow assessing officer to add additional income, even if it found that actual profit is more than 6/8%. Is the same applicable in case of Partner drawing money from Partnership firm which files under 44AD? In case presumptive taxation actual profit is different from what is allowed?
My partnership firm has gross receipts of Rs 5 crore. All payments are by cheque and after TDS u/s 194C. Can I take advantage of Section 44AD and pay tax @ 6%?
In the case of a Recruitment Company offering permanent hiring support to clients can opt for Presumptive taxation under Secion 44AD where the turnouver is about Rs 40 lacs p.a.?
Is there a provision under section 44ADA to directly pay 8% tax of your half gross annual income?