Threshold Limits for Presumptive Taxation Schemes on the Rise: A Recap of Budget 2023

The Indian Budget 2023 has proposed several key changes in the presumptive taxation schemes under sections 44AD and 44ADA of the Income Tax Act. These changes are aimed at providing relief to small businesses and professionals and simplifying the taxation process for them.

Under section 44AD of the Income Tax Act, for eligible businesses, the threshold limit has been increased from one crore rupees to three crore rupees. This limit applies to those businesses where the amount or aggregate of the amounts received in cash during the previous year does not exceed five per cent of the total turnover or gross receipts.

Similarly, for professions referred to in sub-section (1) of section 44AA of the Act, the threshold limit under section 44ADA has been increased from fifty lakh rupees to seventy-five lakh rupees. This limit applies to those professionals where the amount or aggregate of the amounts received in cash during the previous year does not exceed five per cent of the total gross receipts.

It is also proposed that the receipt by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the receipt in cash. This means that the taxpayers can now receive payments through cheques or bank drafts and still be eligible for the presumptive taxation scheme.

In addition, the provisions of section 44AB of the Income Tax Act shall not apply to those taxpayers who declare profits and gains for the previous year in accordance with the provisions of sub-section (1) of section 44AD of the Act or sub-section (1) of section 44ADA of the Act, as the case may be.

These amendments will come into effect from 1st April, 2024 and will accordingly apply to the assessment year 2024-2025 and subsequent assessment years.

In conclusion, the proposed changes in the presumptive taxation schemes under the Budget 2023 are a positive step towards simplifying the taxation process for small businesses and professionals. The increased threshold limits will provide much-needed relief to taxpayers and encourage compliance with tax laws.