Under presumptive taxation scheme, entire advance tax must be paid in one instalment by March 15

March 15 is the last day for all income-tax assessees to clear their advance tax liabilities, if applicable. For most income-tax assessees, this is the due date for the fourth and final instalment of advance tax. However, those who plan to file their income tax returns under the Presumptive Taxation Scheme (PTS) are required to pay their entire advance tax liability in one instalment by March 15.

Presumptive Taxation Scheme

Keeping in view the hardship and expenses that a small and marginal business person or professional has to bear in order to maintain books of accounts and get them audited, the government brought in the Presumptive Taxation Scheme. Those who opt for this scheme to file their income tax returns are not required to maintain books of accounts. Besides, unlike other income tax assessees, they are not required to pay advance tax in four instalments, but need to pay all of it in one go on or before March 15 of the respective financial year.

Who can opt for the Presumptive Taxation Scheme?

The scheme is defined under three sections—44AD, 44ADA and 44AE—of the Income-Tax Act, 1961, depending on the type of business and profession.

Section 44AD applies to resident individuals, Hindu Undivided Families and partnership firms (excluding limited liability partnerships or LLPs) engaged in any business with a turnover or gross receipts of not more than Rs 2 crore in the respective financial year.

On the other hand, an individual or partnership firm (other than LLP) undertaking any profession (legal, accounting, medical, architect, technical consultant, interior decorator or other profession as notified by CBDT) as defined under section 44ADA of the Act can opt for PTS provided the total receipts in the financial year are less than Rs 50 lakh.

In case of section 44AE, the benefit can be availed of by every person engaged in the business of plying, hiring or leasing of goods carriages (not more than 10 goods vehicles at any time during the year).

How is income calculated under PTS?

A person adopting this scheme while filing returns can declare income at a fixed prescribed rate.

“Under Section 44AD, businesses having turnover of up to Rs 2 crore are allowed to pay tax on a presumptive profit of 8 percent or higher. This percentage shall be 6 percent in case the payment is received through a banking channel,” said Sandeep Sehgal, partner-tax, at AKM Global, a tax and consulting firm.

“Similarly, under section 44ADA, a person is allowed to pay tax on a presumptive profit of 50 percent or higher. For businesses engaged in the activity of plying, hiring or leasing of goods covered under Section 44AE, Rs 1,000 per tonne of gross vehicle weight per month for each heavy goods vehicle and Rs 7,500 per month for other vehicles is considered as income.” explained Sehgal.

In some cases, PTS is not available. A person earning income in the nature of commission or brokerage cannot adopt the PTS of Section 44AD. Insurance agents earn income by way of commission and hence they cannot adopt the PTS of Section 44AD.

Advance tax liability

In most cases, advance tax is paid in four instalments, but those opting for PTS under Section 44AD/44ADA are liable to pay the whole amount of advance tax in one instalment on or before March 15.

However, “businesses engaged in the business of plying, hiring or leasing of goods carriages covered under 44AE of the Act are not allowed this relaxation and they are required to pay tax as per the normal advance tax instalments as applicable to other businesses,” said Sehgal. “If not paid, then interest at 1 percent per month shall be levied for the amount of shortfall.”

Points to consider before opting for PTS

Once income is filed under PTS, the same method must be followed for the next five years.

If you discontinue or opt out of PTS in a year, you won’t be allowed to file returns under PTS for the subsequent five years and will also be required to get accounts audited in that year if income exceeds the maximum amount that is not chargeable to tax. For example, an assessee claims to be taxed on presumptive basis under Section 44AD for AY 2022-23. However, for AY 2023-24, he did not opt for PTS. In this case, he will not be eligible to claim benefits of PTS for the next five AYs, i.e. from AY 2023-24 to 2027-28. So, consider these provisions before opting for PTS.