Presumptive Tax Scheme for Professionals

If you have income from business and profession and if your taxable income includes such income from business and profession, you need to keep and maintain the accounts and records of transactions (books of account). You also need to get such books of account audited from a Chartered Accountant. However, in case of small taxpayers having business income as well as professional income, the Income Tax Law provides a scheme whereby you don’t need to keep and maintain books of account if you declare business profits or professional profits above certain fixed percentage. This scheme is called a Presumptive Taxation Scheme (PTS).

Presumptive Taxation Scheme for professionals
The Presumptive Taxation Scheme (‘PTS’) is available from Assessment Year 2017-18 (Financial Year 2016-17). According to this scheme, the person engaged in the specified profession need not maintain books of account nor get the audit done if his total receipts do not exceed ₹50,00,000/- and he declares the income from such a profession at 50% or more of the total receipts. The salient features of the PTS for professionals are as under:

What are the professions where it is applicable?
The occupations which are designated as professions by the Income-tax Rules are as below:

  • Architecture
  • Accountancy
  • Authorised Representative
  • Engineering
  • Interior Decoration
  • Legal
  • Medical
  • Technical Consultancy
  • Information Technology professional
  • Company Secretary
  • Film Artists

Applicable to whom?

  • A resident in India having income from profession
  • Individual, Hindu Undivided Family (HUF), Partnership Firm, LLP, Company etc
  • Person having total gross receipts of Rs.50,00,000/- or less

How is presumptive income computed?

  • The total taxable income is computed at the rate of 50% of the total gross receipts of the person in a financial year
  • If you are having gross receipts of ₹48,00,000/- and you opt for the PTS, then the presumptive income is computed at ₹24,00,000/- or more but not less than ₹24,00,000/-
  • You are not allowed to claim any expenses against such presumptive income computed as per PTS

How is depreciation allowed?
Depreciation is not allowed to be claimed against such presumptive income, but the assets are valued at the yearend considering as if the depreciation is allowed.

For example, if you have gross receipts of Rs.48, 00,000/- and your presumptive income is computed at ₹24, 00,000/- for F Y 2019-20. And you have a building of ₹50,00,000/- used for business on which depreciation can be claimed, then no depreciation is allowed but the written down value of the building as at the beginning of next financial year shall be ₹45,00,000/- (by 10% less of the actual original value)

What if the profits are declared below 50% of the gross receipts?
If you declare the profits below 50% of the total gross receipts, then you are required to maintain books of account and get them audited also. You are out of PTS.

Any other advantage of PTS on professional income?
You are not required to pay advance tax in all the four quarters of a financial year, but you are required to pay advance tax only once i.e. on or before 15th March of a financial year. If you do not pay the whole of the advance tax amount before 15th March, then you will be required to pay interest under section 234C of the Income-tax Act.