How to file ITR under presumptive taxation scheme

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Often small businessmen or professionals are unable to maintain books of accounts or financial records or can't afford to hire accountants to do so, which can make the task of filing income tax returns (ITR) difficult for them and can even lead to non-disclosure of income and lower tax compliance. For such professionals and businesses, the Presumptive Taxation Scheme (PTS) is a useful option. It allows you to calculate tax on an estimated income or profit.

This was originally envisaged for small businesses, like kirana stores, to encourage compliance with minimal effort. It makes sure tax is paid and the burden of compliance is minimal, as formal books of accounts may not be maintained

Typically, businesses have to maintain books of accounts, prepare a profit and loss sheet to calculate profit and prepare a balance sheet to file returns, which can be quite a task. "Small businesses who did not have the resources to afford a full-time accountant for complete book keeping and auditing, etc were kept in mind. So, small businesses, professionals who do not have the bandwidth to support full scale accounting and auditing may opt for presumptive taxation," added Gupta.

Here's who can opt for PTS, how to calculate tax under the scheme and how to file returns.

Who can opt for PTS?

The scheme can be adopted by eligible resident individuals, resident Hindu Undivided Families (HUFs) and resident partnership firms. Besides, only specified professionals can opt for this scheme, such as lawyers, doctors, engineer, architect, accountant, technical consultant, interior designers and any other profession as notified by CBDT.

A person adopting PTS can declare income at a prescribed rate and, in turn, is relieved from the job of maintaining books of account

Also, there are restrictions based on the turnover, receipts and nature of business and profession for opting PTS. For instance, only businesses with an annual turnover of less than ₹2 crore can opt for PTS. Similarly, a professional having total receipts below ₹50 lakh in a year and a person who owns not more than 10 goods carriages and is engaged in the business of plying, hiring or leasing such goods carriages can opt for PTS .

Who can't?

Limited liability partnership (LLP) firms and those businesses which claim benefits for being in free or special economic zones (SEZs) or in backward areas can't avail of PTS. Even those who are earning income in the nature of commission or brokerage (such as insurance agents or mutual fund advisers) can't opt for the scheme.

How to calculate tax?

Those who are eligible to opt for PTS need to calculate their earnings based on presumptive basis. Net income is estimated to be 8% or 6% (in case of digital receipts) of gross turnover (for businesses) or ₹7,500 per month for each vehicle where the tax payer plies, leases or hires trucks or 50% of the total gross receipts for the year in case of professionals

For instance, if a businessman opts for PTS and declares the total turnover of the business at ₹1.5 crore in a financial year, business income chargeable to tax so calculated would be ₹12 lakh (8% of ₹1.5 crore). However, if half of the turnover or business income is considered to be received not in cash but through like cheque, draft or online payment, then income can be declared at 6% on that part of the turnover. In the above example, business income chargeable to tax so calculated would be ₹10.5 lakh (6% on ₹75 lakh or half the turnover and 8% on the other half of ₹75 lakh). Assessees are also allowed to willingly declare income at a higher rate than the minimum prescribed rate.

Which ITR to choose?

Taxpayers opting for PTS under Sections 44AD, 44ADA or 44AE are required to file return in Form ITR 4

Keep in mind that ITR-4 has changed a lot this year. The old ITR-4 sought only 4 financial particulars of the business, a) total creditors, (b) total debtors, (c) total stock-in-trade and (d) cash balance. The new ITR-4 form seeks more financial details of business such as amount of secured/unsecured loans, advances, fixed assets, capital account, etc. Further, the new ITR-4 seeks the GSTR number of the assessee and turnover as per the GST return filed by the assessee

Some businesses and professionals can apply for PTS even if they do not have a GSTR number. As per GST regulations, if a professional or businessman had a turnover of less than ₹20 lakh during last fiscal year, then he is not required to obtain the GST registration and he can still opt for the presumptive scheme. They simply need to leave the section asking for GSTR number blank,

Also, if the assessee has capital gains along with business income then ITR-4 cannot be filed; in that case, ITR-3 has to be filed. Remember that the tax department may consider the return filed invalid or not consider it as filed if the wrong ITR form is used.

If you decide to opt for PTS in assessment year 2018-19, you should opt to file ITR under PTS for the next five years. You may opt out of it before five years, but then you will not be allowed to re-opt for PTS for the next five years from the year in which you opted out.

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