Section 44AD of Income Tax - Presumptive Taxation Scheme for Business
For Small Businesses, presumptive taxation scheme is available u/s 44AD of Income Tax which provides relief from maintaining books of accounts
Under Income Tax, for persons carrying on business/profession, it is mandatory to maintain books of accounts in certain circumstances.
To provide relief from the tedious work of maintaining books of accounts for small businesses, Section 44AD has been inserted i.e. scheme of taxation of small businesses under presumptive taxation.
We will look at every aspect of this scheme u/s 44AD here.
FILE ITR-4 WITH www.karrtax.in - HASSLE FREE
1 Who can avail of this scheme u/s 44AD?
The presumptive taxation scheme u/s 44AD can be availed by the following categories of persons only -
(a) Resident Individual
(b) Resident Hindu Undivided Family
(c) Resident Partnership Firm
Thus, a non-resident and any person other than those mentioned above i.e. LLP, companies, etc. are not allowed to adopt this scheme.
2 What businesses are not allowed to avail of this scheme?
There are certain categories of businesses that are not allowed to avail of this scheme. These are :
(a) Any person carrying on the business of commission or brokerage
(b) Any person carrying on Agency business
(c) Any business relating to plying, hiring of goods carriage which is covered u/s 44AE
(d) Any business whose turnover exceeds Rs. 2 Crore [Rs.3 crore from A.Yr.2024-25] during the Financial year
(e) Also persons carrying on Profession are not allowed under this scheme
3 How the Profits are calculated under this Scheme?
Any eligible person carrying on eligible business is required to declare 8% of turnover/gross receipts as net Profit under this scheme.
The rate of 8% is reduced to 6% in case the receipts/turnover is collected by way of cheque/bank draft or any other mode through electronic transfer.
By doing so, the person is not required to maintain any books of accounts as prescribed u/s 44AA of the Income Tax Act.
However, if the actual profits are higher than 8%/6%, then the higher profits are required to be shown.
4 Conditions for Entry/Exit from the Scheme:
Any person who has availed of this scheme is required to continue in the scheme for Five years. If he opts for the normal scheme of taxation within 5 years of adopting this scheme, then he/she will not be allowed to re-enter this scheme for the next five years.
For Example, Mr. A has adopted a presumptive scheme for A.Yr.2019-20 u/s 44AD. He continued with the same for A.Yr.20-21. During the A.Yr.21-22, he declared the income as per normal provisions of business. In this case, he will not be allowed to re-enter this scheme for the next five years i.e. up to A.Yr. 26-27, and will have to continue under the normal scheme and will have to get the books of accounts audited.
5 Liability to pay advance tax under presumptive Scheme
Any eligible person taking the presumptive scheme is required to pay full advance tax on or before 15th March of the F.Yr. Thus he/she is not required to pay any advance tax for I, II & III Installments of the F.Yr. However, if full advance tax is not paid up to 15th March, then the normal interest provisions will be applicable.
Need Assistance in Presumptive Taxation ITR filings - ask us
You have reached the end of this article.