Section 44AD of Income Tax Act, 1961 is the presumptive taxation scheme. This was introduced for ease of taxpayers. As per the provisions of the section 44AD, certain percentage of turnover will be considered as deemed income for Profit or Gain from Business and professional (PGBP).
Applicability of Section 44AD
This section is applicable to an assessee who fulfils following condition-
- An assessee can be Resident Individual or Resident HUF or Resident Partnership firm.
- An assessee must not be a non-resident or LLP firm or AOP or BOI or Company.
- The turnover (Total Sales) of the business must not exceed two Crores.
- An assessee must not carry on specified profession or business of plying, hiring or leasing of carriages.
- Assessee must not have Agency business.
- An assessee must not have main income source in nature of Commission or Brokerage
- An assessee must not claim deduction under section 10A/10AA/ 10B/10BA or under sections 80HH to 80RRB.
Read Also: Income Tax Filing for Freelancers
Amount Deemed as PGBP Income
As per the provisions of the section 44AD, PGBP income shall be deemed to be 8% of gross turnover or any other higher amount.
For example, Mr. BabaTax is running a shop whose turnover is Rs. 80 lakh for the previous year. He is willing to adopt the provisions of presumptive taxation scheme under Section 44AD of the Income Tax Act, 1961. As per the provisions of Section 44AD, income will be computed on the basis of estimation at the rate of 8% of gross receipts or total turnover of the eligible business for the previous year.
In this case, Mr. BabaTax having a business with Rs. 80 lakh turnover (less than Rs. 2 crore as per the provisions of Section 44AD) can adopt the provisions of the scheme. And his annual presumptive income for income tax purpose will be Rs. 6.4 lakhs (i.e. 8% of 80 lakh).
The Government of India has a vision of making India a digital economy and in order to promote digital transactions in the economy the rate of deemed income is reduced to 6% of gross turnover related to transactions which are received directly in bank account by –
- Account Payee Cheque.
- Account Payee Draft
- Or any other prescribed electronic mode.
Read Also: Difference between Section 44AD, 44ADA and 44AE of Income Tax Act
Important Points under Section 44AD
1. Any other Expenses are NOT ALLOWED to be deducted.
2. He can file Income tax return (ITR) in form ITR-4.
3. Deduction of chapter VI (section 80C to 80U) are allowed as deduction
4. If an assessee selects this section, it is compulsory for him to follow the section for next 5 years too.
Read Also: Income from business of plying, hiring or leasing goods carriages – Section 44AE of Income Tax, 1961
5. If an assessee is declaring his income as per section 44AD the requirement relating to maintenance of books of accounts and audit of books of account is not applied.
6. The assessee is required to discharge is advance tax liability on or before 15th march of relevant previous year. Read more: Advance Tax liability : Calculation, Due dates, Interest
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The author of the above article is Aditya Kishore.
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