- Date : 14/02/2023
- Read: 4 mins
Presumptive tax limits can save a lot of hassle and costs of getting audits. You can enhance your ability to find the best tax route with greater awareness of tax laws.
Get A Hike In Presumptive Tax Limits Now
Taxation norms can be crucial metrics for assessing the financial functionality of a nation. Due to presumptive tax limits, small businesses with turnovers of up to Rs. 2 crores or less can pay their taxes based on their declared returns because that is their presumed income.
However, in the budget 2023-24, Finance Minister Nirmala Sitharaman proposed an increase in the tax limits, taking the range to up to Rs. 3 crores for small businesses and up to Rs. 75 lakhs for professionals.
3 ways this hike in presumptive tax limits would help
Let’s look at the several ways this change in tax limits can help businesses and professionals:
1. The income tax rate applies to your receipts
In today’s day and age, a large proportion of businesses generate and maintain their receipts digitally. With government initiatives encouraging online payments and cashless transactions, e-receipts can only become further widespread in the upcoming years. The reduction of the tax rate from 8% to 6% for non-cash or digital payments is an excellent example of this.
So, this hike in the presumptive tax limits will be beneficial because the taxation will apply to the digital receipts of a business, thus eliminating the need for maintaining accounting records.
Also read: Your source for mutual fund tax information
2. The increased tax limit makes auditing inessential
For those that fall under the stipulated limits, there’s no need to get their accounting records audited. This saves small businesses and professionals a lot of hassle. For some businesses, maintaining their accounts might help assess whether the presumptive path is beneficial for them or not.
3. Businesses can navigate the deductions maze better with presumptive tax limits
The main benefit of the hike in this tax limit covering a more comprehensive range of people is that navigating the deduction game will become much more manageable. Filing for income tax after deducting business expenditure were just more steps of the same equation.
Under the income tax act, businesses and professionals availing presumptive taxation can pay a 6% tax for non-cash payments and an 8% tax for cash receipts. For businesses that want to escape the deduction pathway, presumptive taxation is a boon.
Also read: Tax facts at a glance
Can presumptive taxation be a limiting factor?
Despite all the benefits associated with presumptive taxation, there are few cases where it can do more harm than good. Businesses or professionals with taxable incomes lower than their 6 or 8 % turnover value may consider something other than presumptive taxation as their best option.
Taking the conventional route of deductions and audits may serve them better. Except for some, this hike in presumptive tax limits will prove helpful to many and truly reap the perks associated with cashless receipts and no accounting records.
Indirect benefits of hiking the tax limit for the national economy
Presumptive tax limits help small taxpayers directly but also carry the indirect potential of boosting national growth. That’s because the simplification of obligations will most likely result in their fulfillment. The process just got simpler for the low-turnover population.
The presumptive income method is proven to be more effective against tax avoidance. That’s because small businesses receive some relaxation, and the ordeal of maintaining records of accounts is also cut short. Of course, the voluntary declaration of additional income is always present as an option for those who wish to avail of it.
Overall, filing taxes on a presumption basis is a positive step towards widening the tax base and increasing the regularity of tax payments. However, the methods of presumption must be monitored so taxpayers can’t hide income.
Also watch: New tax regime Vs. Old tax regime
Final words
The hike in presumptive tax limits proposed in the budget for FY 2023-24 is likely to help many small enterprises and professionals by becoming a great alternate option. It’s still advisable for businesses to maintain their accounting records as part of healthy business practices.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.
Reference links-
https://cleartax.in/s/freelance-professional-business-income
