How is presumed taxation applicable to various businesses and professionals?

Presumptive taxation for professionals is for those who have a total income of up to Rs 50 lakh, and with this scheme, they can directly offer 50% of their total profit and pay tax as per their tax slabs. whereas presumptive taxation for businesses includes businesses whose turnover is less than Rs 2 crore.

Presumptive taxation

Presumptive taxation

Presumptive taxation is a concept of taxation that is based on presumptive income or profit. It is a system of taxation that is applicable to certain taxpayers in India. Under this system, the income of the taxpayer is estimated based on certain assumptions, and the tax is calculated on the estimated income. This system is applicable to businessmen, professionals, and corporate assesses who have presumptive income up to Rs 2 crores in any financial year. Under this system, the taxpayer is not required to maintain books of accounts or get their accounts audited. The taxpayer is required to file the income tax return and pay the tax calculated on the estimated income. The taxpayer is not required to keep books of accounts or have them audited. The taxpayer is required to declare his income in his income tax return and pay tax on the estimated income.

Also Read: Financial health checklist!

Presumptive taxation for businesses 

Presumptive taxation is applicable to certain businesses, including those engaged in the business of ply, hiring, or leasing goods carriages, legal and medical professionals, commission or brokerage agents, film artists, and those engaged in the business of selling or purchasing goods or providing services. Under this scheme, the income of the taxpayer is assumed to be 8% of the gross turnover, or gross receipts, in the case of businesses other than those that ply, hire, or lease goods carriages under this scheme. In the case of businesses engaged in the plying, hiring, or leasing of goods carriages, the income is assumed to be 6% of the gross receipts.

Only taxpayers with total sales, turnover, or gross receipts of less than Rs. 2 crores in any year are eligible for the presumptive taxation scheme. Further, the income of the taxpayer should not include any income from speculative businesses, any income from any agency business, or any income from any profession subject to the provisions of the Income Tax Act.

Presumptive taxation for professionals

The professionals under presumptive taxation are required to pay a fixed amount of income tax based on the income they declare. This system is designed to simplify the taxation process for professionals and reduce their tax burden. It is also seen as an effective way to encourage compliance with the Income Tax Act. The tax rate for professionals is usually higher than the tax rate for other taxpayers. There are two types of presumptive taxation for professionals:

Presumptive taxation of 50% of gross receipts: Under this system, the professional is required to declare 50% of their gross receipts as taxable income. This means that the professional has to pay tax on half of their revenue.
Presumptive taxation of 8% of gross receipts: Under this system, the professional is required to declare 8% of their gross receipts as taxable income. This means that the professional has to pay tax on 8% of their revenue.
In both cases, the professional is required to pay tax on their declared income. The tax rate for professionals under the presumptive taxation system is usually higher than the tax rate for other taxpayers.

Also read: Here’s how you can make time for your finances!

Final words 

In conclusion, presumptive taxation is a beneficial system for businesses, as it simplifies the filing process and encourages compliance. However, it can be regressive and may not be suitable for all businesses. whereas presumptive taxation for professionals is seen as an effective way to simplify the taxation process for professionals and reduce their tax burden. It is also seen as an effective way to encourage compliance with the Income Tax Act.

NEWSLETTER

Related Article

Premium Articles