The new tax regime is now the default option for taxpayers, but salaried individuals can still choose between the old and new regimes every year based on which one helps them lower their tax liability.
The rules, however, are different for those earning income from a business and profession. The same applies to presumptive taxpayers, who face certain restrictions when it comes to switching between the two tax regimes.
What is presumptive scheme of taxation?
The presumptive taxation scheme allows , professionals and small businesses to declare income as a fixed percentage of their turnover without requiring to maintain detailed books of accounts.
Governed under Sections 44AD and 44ADA of the Income-Tax Act, it ensures smoother filing of income tax returns while offering major tax-saving opportunities for eligible taxpayers.
Eligible taxpayers who have opted for the presumptive scheme must report their income under the ‘Profits and Gains from Business or Profession’ head during their ITR filing using the ITR-4 (Sugam) online form. Tax will be calculated after deducting eligible business expenses.
However, taxpayers must also noted that once they choose to use presumptive taxation, it must continue for five consecutive years. In case, the individual makes an early exit from the scheme, re-entry is not allowed for the next five years, according to a Cleartax report.
Additionally, those who opt for presumptive taxation are required to pay their advance tax in full in a single instalment on or before March 15 of the relevant financial year.
Can presumptive taxpayers switch between old and new tax regime?
Yes, presumptive taxpayers can switch between the old and new tax regimes, but unlike salaried individuals, such individuals do not have the flexibility to change their choice every year.
Taxpayers with business or professional income who file returns using, ITR 4, and ITR 5 can opt out of the default new tax regime and vice versa by filing Form 10-IEA. However, this option can be exercised only once, meaning if someone moves back to the old tax regime, they won’t be able to opt for the new tax regime again while continuing to have business or professional income.
This makes the decision to opt out of the new tax regime an important one, as it may have long-term tax implications.
Benefits of presumptive taxation
There are several benefits of opting for presumptive taxation, especially for those with income from business. Here are a few point to remember:
- Your net income is considered as a percentage of your turnover and you will pay tax on that income, thus reducing your tax outgo.
- You will not be required to maintain accounting records.
- You do have to get an audit done.
- Though, you still have to pay advance tax, but instead of estimating income and paying tax each quarter, you can pay all your as a lump sum before March 31.
For taxpayers who have opted for the presumptive scheme, Advance tax must be paid by 15th March of the relevant financial year if you expect that your income tax liability will exceed ₹10,000 in the financial year.