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Section 44AD: Presumptive Taxation for Small Businesses - A Relief from Hassle of Book Maintainene and Audit

Section 44AD - Presumtive Taxation

To give relief to small taxpayers from the tedious job of maintaining books of account and getting the accounts audited, the Income-tax Act has framed the presumptive taxation scheme under sections 44AD, section 44ADA and section 44AE.

In this article, we will discuss the Section 44AD

Presumptive Taxation Scheme of Section 44AD

The presumptive taxation scheme of section 44AD can be adopted by the following persons:

1) Resident Individual

2) Resident Hindu Undivided Family

3) Resident Partnership Firm (not Limited Liability Partnership Firm)

Who Cannot Adopt 44AD

The presumption taxation scheme cannot be adopted by a non-resident and by any person other than an individual, an HUF or a partnership firm (not a Limited Liability Partnership Firm).

This scheme cannot be adopted by a person who has made any claim towards deductions under section 10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant year.

Businesses not covered under the presumptive taxation scheme of section 44AD

The following businesses cannot adopt presumptive taxation:

  • Business of plying, hiring or leasing of goods carriages referred to in section 44AE.

  • A person who is carrying on any agency business.

  • A person who is earning income like commission or brokerage.

  • Person carrying on profession like Lawyer, Chartered Accountants, etc. as defined u/s 44AA(1)

Turnover Limit for Section 44AD

  • A person whose total turnover or gross receipts for the year exceed Rs. 2,00,00,000 cannot adopt the presumptive taxation scheme of section 44AD.

  • However, if the total cash received during the year is less than 5% of total turnover, then the threshold limit is increased from Rs. 2 Crore to Rs. 3 Crore.

Manner of Calculation of Profit for Presumptive Turnover U/s 44AD

  • In case of a person adopting the provisions of section 44AD, income is computed on presumptive basis at the rate of 8% of the turnover or gross receipts of the eligible business for the year.

  • But in case the sales is received from banking channel than the presumptive income will be reduced to 6% of the turnover of gross receipts.

Few Other Points of 44AD:

  • It will be considered that all expenses including depreciation are claimed and no further or any additional expenses will be allowed.

  • In case person opts for presumptive taxation, than whole advance tax is to be paid by 15th March23 and not during each quarter.

  • Not required to maintain books or accounts or get its account audited.

Consequences if a person opts out from the presumptive taxation scheme of section 44AD

If a person opts for presumptive taxation scheme then he is also require to follow the same scheme for next 5 years. If he failed to do so, then presumptive taxation scheme will not be available for him for next 5 years. [For example, an assessee claims to be taxed on presumptive basis under Section 44AD for 2021-22. However, for AY 2022-23, if he did not opt for presumptive taxation Scheme. In this case, he will not be eligible to claim benefit of presumptive taxation scheme for next five AYs, i.e. from AY 2023-24 to 2027-28.]

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1 Kommentar

  1. if a lawyer or doctor also does share trading, can he opt for 44AD for share trading only ?

  2. Whether the exemption from maintenance of books of accounts is provided for the person opting to offer income under 44AD ? If yes can you just provide the provision in respect of ?

  3. whether 8% or 6% as the case may be to counted on turnover including taxes such as GST or without Taxes ?

  4. If the person opt out after opting once for 44AD, does he requires to do tax audit irrespective of turnover for further 5 years ?

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