Presumptive Taxation -Section 44AD
Section 44AD provides for the
scheme of Presumptive
Taxation. Any person opting for Section 44AD is not required to
regular books of accounts and further there is exemption from tax
Section 44AD provides for calculation of income of the eligible
assessee at a flat rate of 8% or 6% (in case receipts through cheque or
electronic modes) of gross receipts/turnover of the
assessee for Section 44AD
Only following assesses if Resident in India are eligible assessees:
Business for Section 44AD
- HUF and
- Partnership Firms (but not Limited liability
- Any business except the business of plying, hiring or
leasing goods carriages as it is dealt with seperately u/s 44AE
- Not applicable in case of agency business and
business having income from commission and brokerage.
- Total turnover or gross receipts of the business in
the previous year should not exceed
an amount of 2 crore rupees. (Prior to financial year 2016-17 this
limit was Rs. 1 crore)
the year 2016-17 (assessment year 2017-18) a new section 44ADA
has been inserted to extend the scope of presumptive income scheme to
professionals as well. Professionals having gross
receipts not exceeding Rs. 50 lacs from their profession, can opt
for this section & declare their net income at 50% of their total
Section 44AD is also termed as presumptive taxation as the income is
calulated at an estimated basis.
- The income is calculated at a flat rate @ 8% of
total turnover/gross receipts of the eligible business.
- From Financial Year 2017-18 the income is
calculated at a flat rate of 6% of turnover received through a non cash
mode (ie. by an account payee cheque or an account payee bank draft or
through elecronic payment mode) during the previous year or before the
due date of filing of IT return.
- For Profession:
From the financial year 2016-17 (assessment year 2017-18) a new section
44ADA has been inserted to provide for presumptive income
of profession @ 50% of gross receipts
of the profession.
Various allowances & disallowances
calculated at the estimated basis of 8% or 6% is net income ie. net of
incomes & losses of business. Deduction for any business expenses
under section 30 to 38 including depreciation or unabsorbed
depreciation are not permitted to be claimed.
In a nut shell income calculated on estimated basis under section 44AD
is net of all expenses, losses or disallowances.
of WDV of Depreciable assets
explained earlier no deduction for depreciation is admissible when
income is calculated under section 44AD. But WDV of a depreciable
asset will be calculated as if deduction of section 32 for depreciation
is claimed & allowed. Thus we can say that though depreciation will
not be allowed seperately but for the purpose of determining the WDV of
an asset depreciation will be deducted.
of Books of Accounts & Tax
When income is calculated on an estimated basis no need to maintain
books of accounts and no requirement of tax audit there.
is no requirement to maintain books of accounts as per Section
when income is calculated on an estimated basis U/S 44AD.
if income to be disclosed is less then 8% or 6% of total turnover but
exceeds the basic exemption limit ( Rs. 250000 for AY 2019-20)
accounts need to be maintained and requirement to get Tax Audit done
will also be there.
out of Section 44AD & Declaration of lower Income
if income to be disclosed is less then 8% or 6% of total turnover and
exceed the basic exemption limit (Rs. 250000 for AY 19-20) requirement
to maintain books of Accounts and Tax Audit will not be attracted.
actual income of the business is lower than the prescribed limit of 8%
lower income can be declared. The point of consideration is that when
income is to be declared at a lower rate and if such income is
within taxable range ie. exceeds the basic exemption limit (maximum amount not chargeable to
tax), maintenance of books of accounts will be required as per Section
& further tax audit u/s 44AB will also be required.
Detailed provision for opting out of Section 44AD says:
In simple words
if you opt out of the scheme of Section 44AD with in five years of
opting in, you can not opt for same for next five years and if your income exceeds the basic exemption limit you will
also be required to maintain books of Account u/s 44AA
Tax Audit done u/s 44AB.
- If once benefit of Section 44AD is taken by declaring
income @ 8% or 6% and during any of the next five years the income is
not declared at 8% or 6%, then benefit of section 44AD can not be
claimed for the next five years to the year in which income is not
declared according to Section 44AD.
From assessment year 2017-18 businesses declaring profit on
estimated basis u/s 44AD are required to
pay advance tax.
Accordingly eligible assessee shall be required
to pay advance tax. However, in order to keep the compliance minimum in
this case, 100% advance tax should be paid by 15th March
of the financial year.
- In case of more than one business, total turnover
from all the businesses shall be taken together.
- In case of income from business as well as from
profession, both should be dealt separately.
- Deduction of Chapter VI A (for tax saving
investments) can be claimed.
- Income under this section is taken as income under
the head income from business & profession.
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