- Date : 03/02/2023
- Read: 3 mins
A look at the budget 2023 announcement on the increase in threshold limits under the presumptive taxation scheme
Finance Minister Ms Nirmala Sitharaman proposed in budget 2023 that the threshold limits for availing of the benefits of presumptive taxation will be raised for Micro, Small and Medium Enterprises (MSME) and professionals. She mentioned that MSMEs are the growth engines of the Indian economy and included this change under Ease of Compliance-related reforms.
The New Threshold Limit
The threshold limit for the presumptive scheme of taxation has been raised from Rs 2 crores to Rs 3 crores for eligible businesses. For specified professions, the limit has been raised from Rs 50 lakhs to Rs 75 lakhs. Thus, a wider section of taxpayers can now opt for filing income tax returns under the presumptive taxation schemes.
A precondition for this option is that the amount or aggregate amounts received during the year in cash must not exceed 5% of the total gross receipts or turnover. Apart from promoting ease of compliance, this step will encourage non-cash transactions.
The Finance Minister also proposed that the deduction for expenses made against payments will be allowed only when the payments are actually made. This is aimed to support MSMEs in the timely receipt of payments.
The Presumptive Taxation Schemes
The presumptive income scheme for small businesses is governed by the provisions of section 44AD. Resident assessees including individuals, HUFs and partnership firms excluding LLPs can opt for this scheme provided they are carrying on eligible businesses and their turnover or gross receipts are below the threshold limit. The scheme allows the assessee to claim 8% of the turnover or 6% of the gross receipts as profit or gain from the business. This is subject to conditions laid down in the relevant section. Besides, the assessee can claim a higher earning than the specified percentages, and tax will be calculated on such a sum.
For small professionals, section 44ADA of the Income Tax Act provides the presumptive income taxation provisions. Resident individual assessees and partnership firms (excluding LLPs) engaged in specified professions and with total receipts below the threshold limit can opt for this scheme. The eligible professions are specified in subsection 1 of section 44AA. They can declare a sum equal to 50% of their gross receipts as profit or gain from their profession and pay tax on the same. They can also declare an amount higher than 50% of gross receipts and pay income tax as calculated on the declared sum.
It must be noted that once you opt for the presumptive taxation scheme, it must be followed for five consecutive years.