Taxation Of Businesses And Professions

The Income tax act covers taxability of profits from business or profession under section 28 to 44DB. The manner of computation of profits under income tax is differ with the book profits computed. Also, the requirements of business to maintain books of accounts and tax audit are given in the provisions of Income tax act. Some of the major provisions in taxation of profits and gains from business/profession are discussed below.

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Presumptive Taxation

Sec 44AD

Presumptive taxation was introduced to reduce compliance for small businesses. It can be opted by resident individuals/HUF/ firms (excluding LLP) engaged in business. Such person whose turnover is not exceeding Rs 2 crores can opt for presumptive taxation. They must declare profit of 8% on turnover for non-digital transactions and 6% for digital transactions whichever is applicable. The following businesses are excluded from presumptive taxation:

  • Life insurance agents.
  • Commission of any kind.
  • Running the business of plying, hiring or leasing goods carriages.

For the FY 2023-2024 through Finance bill 2023, the benefit of presumptive taxation option has been extended to businesses with turnover not exceeding Rs. 3 crores subject to condition that 95% of the receipts should be received by payment mode other than cash.

Sec 44ADA

The presumptive taxation scheme of section 44ADA is designed to give relief to small taxpayers engaged in specified profession. It can be opted by resident individuals/ firms (excluding LLP) engaged in specified profession. Specified professions are:

1) Legal; 2) Medical; 3) Engineering or architectural; 4) Accountancy; 5) Technical consultancy; 6) Interior decoration; 7) Any other profession as notified by CBDT.

Such professionals with gross receipts not exceeding Rs. 50 lakhs in financial year can opt for presumptive taxation. They must declare profits @ 50% of the total gross receipts of the profession. However, such person can declare income higher than 50%.

For the FY 2023-2024 through Finance bill 2023, the benefit of presumptive taxation option has been extended to professionals with gross receipts not exceeding Rs. 75 lakhs subject to condition that 95% of the receipts should be received by payment mode other than cash.

Tax Audit

Tax audit refers to the verification of the books of accounts maintained by a taxpayer. The purpose of a tax audit is to validate the income tax computation made by the taxpayer in the income tax return and to ensure compliance with the laws of Income Tax. Audit of books of accounts must be carried out by a certified Chartered Accountant.

Tax audit is mandatory in the following cases:

  • Turnover or gross receipts of business exceed Rs 1 crore in the financial year. If cash transactions are up to 5% of total gross receipts and payments, the threshold limit of turnover for tax audit is increased to Rs.10 crores.
  • Gross receipts of professional exceed Rs. 50 lakhs in the financial year.
  • Claims profits or gains lower than the prescribed limit under presumptive taxation scheme under Section 44AE, 44BB or 44BBB
  • Claims profits or gains lower than the prescribed limit under the presumptive taxation under sec 44AD and has income exceeding the basic exemption limit
  • Carrying on the business and is not eligible to claim presumptive taxation under Section 44AD due to opting out for presumptive taxation in any one financial year of the lock-in period i.e., 5 consecutive years.

Setting up business

Private Limited company
Proprietorship
DIN
PAN
EPF

ROC Compliance

LLP ROC Compliance
OPC ROC Compliance
Company ROC Compliance
Closure of Private company
Closure of LLP

Direct tax compliance

Filing income tax returns
Chapter VIA deductions
Capital gains taxation
Taxation of business
NRI income

Indirect tax compliance

GST returns and due dates
Input tax credit claim
GST Refund
GST TCS
GST TDS

Capital Gains TaxationTAXATION-OF-CAPITAL-GAINSTAX-DEDUCTED-AT-SOURCETax Deducted at Source