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STUDY NOTE - 15

PRESUMPTIVE TAXATION

This Study Note includes

• Various Provisions of computing profits on a presumptive basis

Sections 44AD, 44AE and 44AF cover special provisions of computing profits on a pre-
sumptive basis. All the schemes are optional at the discretion of the assessee. Since
income is estimated, these are also known as ‘estimated income schemes’.
Conditions and manner of computation common to all three sections are given at the end after
specific provisions applying to each section. In a case the assessee does not desire to opt for the
scheme, if he maintains such books of account and other documents as required under sub-
section section 44AA and gets his accounts audited and furnishes a report of such audit as
required under section 44AB.

15.1 BUSINESS OF CIVIL CONSTRUCTION ETC. Section 44AD

1] Applies to:
Any person engaged in the business of civil construction or supply of labour for civil
construction work, if his gross receipts from the above business do not exceed Rs. 40
lakhs. The term Civil construction covers repair of any building or other structures or
road and execution of any works contract, including electrical fittings, plumbing job
etc.

The section applicable to any assessee engaged in the business of civil construction or
supply of labour for civil construction. Therefore, any sub-contractor is also covered
under the section provision - Manohar Ram Chandra Patil v. Union of India [2003] 260
ITR 87 (Ori.).

2] Deemed Income:

8% of the gross receipts payable or paid to such person or any higher amount voluntar-
ily declared by him shall be deemed to be his income from such business.

Refer to ‘[A] Conditions’ and ‘[B] Computation’ below.

Applied Direct taxation 245


Presumptive Taxation

15.2 BUSINESS OF PLYING, LEASING OR HIRING TRUCKS


Section 44AE

1] Applies to:

Any person engaged in the business of plying, leasing or hiring of trucks if he owns not
more than ten goods carriages at any time during the previous year including those
taken on hire purchase or on installments.

This scheme does not apply to those who operate trucks on hire without owning them
(Circular 684, dt. 10-6-1994)

2] Income
Type of Goods Carriage Estimated Income
Heavy Goods Vehicle Rs. 3,500 for every month (or part of a month).
Other than Heavy goods Rs. 3,150 for every month (or part of a month).
vehicle
Income is estimated as above for the period during which the goods carriage is owned by the
taxpayer
Refer to ‘[A] Conditions’ and ‘[B] Computation’ below.

15.3BUSINESS OF RETAIL TRADING OF GOODS Section 44AF

1] Applies to:
Any person engaged in the business of retail trade in any goods or merchandise shall
be covered by this provision, if his turnover from the above business does not exceed
Rs. 40 lakhs.
2] Tax Charge:
5% of the total turnover of such person or a higher sum voluntarily declared by him
shall be deemed to be his income from such business.
Refer to ‘[A] Conditions’ and ‘[B] Computation’ below.
Common Conditions and Computation method for Estimated Income Schemes: A] Condi-
tions:
All deductions under sections 30 to 38 including depreciation are deemed to have been al-
lowed. No further deduction allowed under these sections.
The written down value of asset used in the business will be computed as if depreciation, as
applicable, was allowed.
It will be assumed that disallowances if any under sections 40, 40A and 43B were considered
by calculating the income estimated above.

246 Applied Direct taxation


In the case of a firm, the deduction in respect of salary and interest to partners under section
40(b) will be allowed from the estimated income.
In respect of this business the assessee is not required to maintain books of account as per the
provisions of section 44AA. However, amount of turnover is required to be established.
The assessee is not required to get the books of account audited under section 44AB in respect
of the above business.
B] Computation:
The income calculated above shall be aggregated with income from any other business or other
heads of income under the other provisions of the Income-tax Act.
The brought forward business losses and other losses will be allowed to be set off.
All deductions under sections 80CCC to 80U shall be allowed
NOTE:
The profit and loss from related businesses covered by sections 44B, 44BB, 44BBA, 44BBB, namely
Shipping business in case of non-residents, Business of exploration, etc. of mineral oils, Opera-
tion of aircraft in case of non-residents, Foreign companies engaged in the business of civil
construction, etc., in certain turnkey projects are not covered here as they have lower relevance
and usage.

Applied Direct taxation 247

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