This scheme, covered under Section 44AD of the Income Tax, is eligible for proprietary businesses, partnership firms and Hindu Undivided Family. Companies limited by shares, limited liability partnership firms, professionals (doctors, lawyers and architects), those earning income by way of commissions or brokerage (insurance and real estate agents), and those in the business of plying, hiring or leasing goods carriage are not covered in this scheme.
Some of these businesses and professions have higher profits margins on their turnover and that’s why the government has not included these under PTS, say experts. Those plying and leasing goods carriage are covered under Section 44AE, where the presumptive taxation is based on the number and specification of vehicles owned.
“Under this scheme, a firm needs to take eight per cent of the total turnover as its income and pay the applicable tax on it,” . The turnover includes money spent to pay sales tax. According to some experts, it’s better if service tax paid is also included as part of the turnover. So, if a proprietary business has a turnover of Rs 1 crore, the income considered will be Rs 8 lakh. This will be clubbed with the income of the owner and taxed according to the slab. “The best part is that those opting for this don’t need to pay advance tax,”.
Experts also say that once a person opts for this scheme, the assessee is not under any obligation to explain individual entries of cash deposits into bank account, unless the entry has no connection with gross receipts.
For all the benefits it offers, PTS comes with certain restrictions. For example, assessees cannot claim any exemptions – not even depreciation. “If a person files returns under this scheme currently and next year the turnover crosses the qualifying limit (Rs 1 crore), he will need to used the written down value of the asset while calculating depreciation,”.
Similarly, if the person is carrying forward losses from the previous financial year, he cannot adjust them against profits under this scheme.