The Sugam or ITR 4S Form is the ITR form for those taxpayers who have chosen for the presumptive income scheme under the Section 44AD and Section 44AE of the Income Tax Act. However, if the turnover of the business mentioned above is more than Rs 1 crores, the taxpayer will have to file ITR-4.

August 31, 2015, is the due date of filing the ITR 4S form for the Financial Year 2014-15.

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Presumptive Income & its Taxation – under section 44AD

When you are managing a small business, you may not have sufficient resources to sustain appropriate accounting information and compute/analyze your profit or loss. This makes it hard to keep a trail of your revenue from such a trade and discover out how much tax you need to pay.

Keeping this in mind, the Income Tax Department has laid out several trouble-free provisions where your earnings are assumed based on the gross receipts of your business. This method is called the presumptive method, where tax is paid on an estimated basis.

Features of this Scheme

  • Your Net Income is anticipated/estimated to be 8% of the gross receipts of your business.
  • You are not required to maintain books of accounts of this business.
  • You do not have to pay Advance Tax for such a business.
  • You are not permitted to deduct any business expenses against the income.

If you are running more than 1 business, the scheme has to be selected for each business individually. For example, if you run 5 businesses where only 1 is assessed under section 44AD. The relief of not maintaining accounting records & no audit requirement is only applicable to the business to which this scheme applies. For other 4 businesses which are uncovered under this section – the accounting records have to be maintained and audit is also required.

Correspondingly, in case of Advance Tax, the exemption from payment of advance tax is only granted for the business for which this scheme has been chosen for. If the taxpayer has income which is from sources other than business, where his tax liability is more than Rs 10,000 in a year, he is liable to pay advance tax on such other income. Advance tax will only be computed on the remaining income and not for the business covered under section 44AD.

If the taxpayer has claimed deduction under section 10, 10A, 10B, Section 10BA, or Section 80HH to 80RRB in the relevant year, the scheme cannot be adopted by him.

Eligibility Criteria for this Scheme

  • Your gross receipts or turnover of the business for which you intend to avail this scheme should not exceed Rs 1 crore.
  • You must be a Resident of India.
  • This scheme is valid for an individual, an HUF or a partnership firm. It is not applicable to a Company.

Eligible Businesses applicable under this Scheme

The taxpayer can be in any business ranging from retail trading, wholesale trading or civil construction or any other business to avail benefit under this scheme. But this method of income computation is NOT applicable to following business mentioned below:

  • Agency business
  • Income from brokerage or commission
  • Business of hiring, plying, or leasing goods carriage (see section 44AE)
  • Professionals – who are into a profession of legal, engineering, medical, architectural, accountancy, interior decoration, technical consultancy, an authorized representative, information technology, film artist and company secretary? Authorized representative signifies any person, who represents someone for a fee or remuneration, before any Tribunal or authority under law. Film Artist includes a producer, cameraman, actor, director, art director, music director, dance director, editor, lyricist, singer, story writer, screenplay writer, dialogue writer, and dress designer – principally any individual who is occupied in his professional capacity in the production of a film.

These are the professions listed under section 44AA (1).

Deduction for Business Expenses

No business expenses are permitted to be deducted from the net income. Depreciation too is non-deductible. Though, in the case of a partnership firm, the separate deduction for remuneration of partners and interest paid to partners is acceptable. This must be within the limit specified under section 40(b).

Even though depreciation is not acceptable as a deduction. Written down value (WDV) of the assets shall be considered as if depreciation has been allowed.

Can the taxpayer declare higher or lower income than 8% of gross receipts?

The taxpayer can freely affirm a higher income and pay tax on it. In case the taxpayer opts to affirm lower income than 8% of gross receipts – he shall have to keep up the books of accounts and get them audited.

Computing Turnover or Gross Receipts

Gross receipts or Turnover denote the total collections of the business. The receipts shall be inclusive of VAT & Excise Duty. The receipts shall also include delivery charges as well as receipts from the sale of scrap.Advances received discounts given and money received on sale of assets should be excluded.

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