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Presumptive taxation schemes under Sections 44ADA and 44AD of the Income Tax Act provide simplified tax solutions for small businesses and professionals. Section 44ADA is designed for professionals like doctors, lawyers, and architects with gross receipts up to Rs. 75 lakh in AY 202425, allowing them to declare 50% of their gross receipts as income.

Similarly, Section 44AD caters to small businesses with turnover up to Rs. 3 crore, permitting them to declare 8% (or 6% for digital transactions) of their gross turnover as income.

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The primary benefit of these schemes is the ease of compliance. Taxpayers opting for presumptive taxation are exempt from maintaining detailed books of accounts and from undergoing audits, reducing administrative burdens and compliance costs. This simplicity encourages more small businesses and professionals to comply with tax regulations. Furthermore, the predictable tax liability helps in better financial planning.

However, there are notable drawbacks. The fixed rate of income declaration may not accurately reflect the actual profits of all businesses, potentially leading to higher tax liabilities for those with lower profit margins. Additionally, once opted, the taxpayer must consistently apply the scheme for five years; failing to do so disqualifies them from reentering the scheme for the next five years. This rigidity can be restrictive for businesses experiencing fluctuations in income or those contemplating significant growth. Despite these drawbacks, the presumptive taxation schemes remain popular for their simplicity and administrative ease.

Presumptive Taxation ITR Benefits and Drawback | 44AD Provisions | How to file ITR 44AD 44ADA
Benefits and Drawback of Presumptive Taxation | Presumptive Taxation ITR 2024 | 44AD | 44ADA | | ITR

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