In an interesting move, a new condition has been added to presumptive income —

you stand to loose presumptive tax benefits, if you do not continue them for atleast 5 years. 

This additional condition has been added by substituting sub section (4) of 44AD which is –

If you are opting for presumptive scheme, you must

  • File presumptive scheme for atleast 5 years in continuation
  • If you decide to show and file profits as per regular business (ITR-4) before the end of these 5 years, you will lose presumptive benefits and disallowed from presumptive taxation for the subsequent 5 years. (5 years shall be counted starting the year in which you first file usual taxes for such business).

The government is discouraging tax payers to misuse the scheme and keep changing their option often. So if you opt for presumptive continue for 5 years and if you want to opt out, you’ll be barred from resuming presumptive for a period of 5 years.

In the Budget of 2016, businesses with turnover up to Rs 2 crores can opt for presumptive taxation scheme. Earlier this limit was Rs 1 crore. We’ll quickly list down the features of this scheme-

  • Your turnover must be less than Rs 2 crores
  • Your NET income shall be considered as 8% of your turnover (net income will be considered 6% in case of digital receipts)
  • You don’t have to maintain accounting records
  • You don’t have to pay advance tax (from FY 16-17, assessee opting for presumptive taxation has to pay 100% advance tax by 15th March of that particular financial year)
  • You don’t have to get your accounting records audited
  • You can file your tax return in ITR-4S a much shorter and simpler form than ITR-4

Professionals have also been added in the ambit of presumptive taxation – read here in detail. However, the time limit of 5 years condition applies only to businesses.

(Do note this new rule for professionals shall apply for FY 2016-17 or AY 2017-18. Also ITR-4 has been renamed as ITR-3 and ITR-4S as ITR-4)

Do write to us if you have any questions support@cleartax.in