For taxpaying professionals, budget offers relief with increased exemptions

Eligible and specified professions whose turnover is between from Rs 50 lakh to Rs 75 lakh will benefit from Budget 2023's announcement of Presumptive Tax Scheme

In order to ease compliance and to promote non-cash transactions, the finance minister has proposed to increase the threshold limits for presumptive schemes of taxation for eligible businesses from a turnover of Rs 2 crore to Rs 3 crore and for specified professions from a turnover of Rs 50 lakh, now up to Rs 75 lakh.

Under the presumptive taxation scheme (PTS) a taxpayer is exempt from maintaining books of accounts. The scheme offers relief to small taxpayers who found it difficult to maintain them and had to bear additional costs.

The scheme is defined under three different sections—44AD, 44ADA and 44AE—of the Income-tax Act, depending on the type of businesses and professions.

So far under section 44AD of the Act, a resident individual, Hindu Undivided Families (HUF) and partnership firms (excluding limited liability partnerships or LLPs) engaged in any business having a turnover or gross receipts of not more than Rs 2 crores in the respective financial year can opt for the scheme.

Similarly, an individual or partnership firm (other than LLP) undertaking any profession (such as legal, accounting, medical, architect, and so on) as listed in section 44AA of the Act and having receipts less than Rs 50 lakhs can opt for the scheme. The benefit of section 44AE of the Act can be availed by every person who is engaged in the business of plying, hiring or leasing of goods carriages (not more than 10 goods vehicles at any time during the year).

In the Budget 2023, the finance minister proposed to increase the limit under section 44AD for businesses has been increased to Rs 3 crore, and limit under section 44AE for professionals has been increased to Rs 75 lakh.
However, the increased limit comes with a condition i.e. that the cash receipts of the business or professional should not be 5% of the total turnover.

The benefits

The main benefit of PTS is that taxpayers are not required to maintain exhaustive books of accounts. Also, in general, one has to pay advance tax in four installments, but, in case a taxpayer adopts PTS under section 44AD/44ADA are liable to pay the whole amount of advance tax in one installment, on or before March 15.

Factors to consider before opting for PTS

Once you file an income-tax return under PTS, you have to follow the same method for the next five years. In case an assessee fails to do so in a year, he shall not be allowed to file a return under PTS for the subsequent five years, and shall also be required to get the accounts audited in that year if income exceeds the maximum amount that is not chargeable to tax.