c

PRESUMPTIVE TAXATION SCHEMES

SECTION 44AD: SPECIAL PROVISIONS FOR COMPUTATION OF INCOME ON ESTIMATION BASIS

Notwithstanding anything to contrary contained in sections 28 to 43C,

-in case of a resident assessee being an individual, HUF, or a partnership firm excluding LLP;

-engaged in a

-a sum equal to 8% (6%*) of the total turnover or gross receipts of the assessee in the previous year on account of such business or a sum higher than the aforesaid sum claimed to have been earned by the assessee;

-shall be deemed to be the income under the head “Profits and gains of business or profession”.

* 6% shall be applied instead of 8% if the amount of total turnover or gross receipts which is received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date specified in subsection (1) of section 139 in respect of that previous year.

CONDITIONS TO BE SATISFIED TO CLAIM BENEFIT U/S 44AD:

–  The turnover from business should not exceed Rs. 2 crore.

– The assessee should be engaged in the business other than plying, hiring, or leasing goods carriages referred to in Section 44AE.

–  The assessee is not engaged in Profession u/s 44ADA

–  The assessee is earning income in the nature of commission or brokerage

–  The assessee is not engaged in Agency Business

NOTES:

1. From this estimated income no deduction or disallowance form section 30 to 38 shall be made.

2. The above income will be aggregated with the other income of the assessee and then all the deduction U/S 80C to 80U will be allowed.

3. The assessee is neither required to maintain any books of Account U/S 44AA nor he is required to get his accounts audited U/S 44AB.

4. If any assessee claims that his income is lower than the estimated income then he will have to maintain books of account and get his accounts audited.

Tax Audit Series-4 Presumptive Taxation Schemes

SUBSECTION 4 OF SECTION 44AD:

> Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and

> he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1),

> he shall not be eligible to claim the benefit of the provisions of this section

> for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub­section (1).

Example:

Mr. Arun has declared his profit for the FY 2018-19 (AY 2019-20) @ 8% u/s 44AD and filed his Income Tax Return accordingly. In FY 2019-20 (AY 2020-21), he has declared his profit @ 5% and has not declared his profit as per Section 44AD(1). Now, since he has not declared his profit as per Section 44AD(1), he is not eligible for Section 44AD(1) for next 5 assessment years i.e. AY 2021-22, AY 2022-23, AY 2023-24, AY 2024-25, AY 2025-26.

SUBSECTION 5 OF SECTION 44AD:

> an eligible assessee to whom the provisions of sub-section (4) are applicable and

> whose total income exceeds the maximum amount which is not chargeable to income-tax,

> shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and

> get them audited and furnish a report of such audit as required under section 44AB.

Whether a person opting for presumptive taxation scheme under section 44AD is required to get his accounts audited?

Section 44AB of the Income-tax Act prescribes the conditions under which an assessee is required to get his accounts audited. It excludes a person from getting books of account audited if he opts for presumptive taxation scheme under Section 44AD provided turnover of business does not exceed Rs. 2 crores.

Clause (e) of Section 44AB states that a person, who has opted for the presumptive taxation scheme under Section 44AD in any of the last 5 previous years but does not opt for the same in the current previous year, shall be liable to get his accounts audited if his total income exceeds the maximum amount not chargeable to tax.

Clause (a) of Section 44AB provides for an audit of books of account if a person is engaged in a business and the turnover of such business exceeds Rs. 1 crore. The Finance Act, 2020 has extended the threshold of turnover to Rs. 5 crores if cash receipt and cash payment does not exceed 5% of total receipt and payment respectively.

If an assessee is covered under both the clauses, that is, Clause (a) and Clause (e) of Section 44AB, whether he will be liable to get the books of account audited?

Example, if the turnover of an assessee is more than Rs. 1 crore and his cash payment and receipt is less than 5%, whether he is liable to tax audit?

Let’s understand this with the help of the table below:

Situation* Turnover Whether liable for a tax audit?
The assessee has opted for Section 44AD in any of the last 5 years but not opting for same in the current year Up to Rs. 1 crore Yes, if income is more than the maximum amount not chargeable to tax [Section 44AB(e)]
Up to Rs. 2 crore
More than    Rs. 2 Crore but up to Rs. 10 crore No [Proviso to Section 44AB(a)]
More than    Rs. 5 crore Yes
The assessee has not opted for Section 44AD in any of the last 5 years and not opting for same during the current year as well. Upto Rs. 5 crore No [Proviso to Section 44AB(a)]
More than Rs. 5 crore Yes

* Assuming cash receipt or payments does not exceed 5% of the aggregate amount received or paid during the year.

SECTION 44ADA: SPECIAL PROVISION FOR COMPUTING PROFITS AND GAINS OF PROFESSION ON PRESUMPTIVE BASIS 

Notwithstanding anything to contrary contained in sections 28 to 43C,

  • in the case of an assessee, being a resident in India,
  • who is engaged in a profession referred to in sub-section (1) of section 44AA and
  • whose total gross receipts do not exceed fifty lakh rupees in a previous year,
  • a sum equal to fifty per cent of the total gross receipts of the assessee in the previous year on account of such profession or,
  • as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the assessee,
  • shall be deemed to be the profits and gains of such profession chargeable to tax under the head “Profits and gains of business or profession”.

CONDITIONS TO BE SATISFIED TO CLAIM BENEFIT U/S 44ADA:

–  The gross receipts from profession should not exceed Rs. 2 crore.

– The assessee should be engaged in a profession referred to in Section 44AD(1).

NOTES:

1. From this estimated income no deduction or disallowance form section 30 to 38 shall be made.

However, remuneration and interest paid/payable to partners shall be allowed as deduction.

2. The above income will be aggregated with the other income of the assessee and then all the deduction U/S 80C to 80U will be allowed.

3. The assessee is neither required to maintain any books of Account U/S 44AA nor he is required to get his accounts audited U/S 44AB.

4. If any assessee claims that his income is lower than the estimated income then he will have to maintain books of account and get his accounts audited.

SUBSECTION 4 OF SECTION 44ADA:

> An assessee who claims that his profits and gains from the profession are lower than the profits and gains specified in sub-section (1) and

> whose total income exceeds the maximum amount which is not chargeable to income-tax,

> shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and

> get them audited and furnish a report of such audit as required under section 44AB.

LIST OF PROFESSIONS IN SECTION 44AA READ WITH RULE 6F:

The following have been listed out as professions in section 44AA read with Rule 6F and other professions notified thereunder (Notifications No. 1620 SO-18(E) dated 12.1.77, No. 9102SO 2675 dated 25.09.1992 and No.116 SO 385(E), dated 4.5.2001):

1. Accountancy

2. Architectural

3. Authorised Representative

4. Company Secretary

5. Engineering

6. Film Artists:

“Film artist” means any person engaged in his professional capacity in the production of a cinematograph film whether produced by him or by any other person, as—

An actors,

A cameraman,

–   A director including an assistant director;

–   A music director, including an assistant music director,

–   An art director, including an assistant art director;

–   A dance director, including an assistant dance director;

–   A singer,

A story-writer,

–   A screen-play writer,

–   A dialogue writer; editor, lyricist and

–   A dress designer.

7. Interior Decoration

8. Legal

9. Medical

10. Technical Consultancy

11. Information Technology.

SECTION 44AE: SPECIAL PROVISIONS FOR COMPUTING PROFITS AND  GAINS OF BUSINESS OF PLYING, HIRING OR LEASING GOODS CARRIAGES

Notwithstanding anything to the contrary contained in sections 28 to 43C,

> in the case of an assessee, who owns not more than ten goods carriages at any time during the previous year and

> who is engaged in the business of plying, hiring or leasing such goods carriages,

> the income of such business chargeable to tax under the head “Profits and gains of business or profession”

> shall be deemed to be the aggregate of the profits and gains, from all the goods carriages owned by him in the previous year,

> computed in accordance with the provisions of sub-section (2).

SUBSECTION 2 OF SECTION 44AE:

The profits and gains from each goods carriage,—

  For Heavy Goods Vehicle:

Rs. 1,000 per ton of gross vehicle weight for every month or part of a month during which the heavy goods vehicle is owned by assessee

For Other Goods Vehicle:

Rs. 7,500 for every month or part of a month during which the goods carriage is owned by assessee

Note: ‘Heavy goods vehicle’ means goods carriage vehicle the gross vehicle weight of which exceeds 12,000 kilograms.

SUBSECTION 7 OF SECTION 44AE:

> An assessee who claims that his profits and gains from the such business are lower than the profits and gains specified in sub-section (1) & (2)

> shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and

get them audited and furnish a report of such audit as required under section 44AB.

NOTES:

1) Provisions of Section 44AE are applicable to assessee having not more than 10 trucks at any time during the previous year. In other words, provisions of section 44AE are not applicable in case the assessee owns more than 10 goods carriage.

2) From this estimated income no deduction or disallowance form section 28 to 43C shall be made. However, remuneration and interest paid/payable to partners shall be allowed as deduction.

3) The above income will be aggregated with the other income of the assessee and then all the deduction U/S 80C to 80U will be allowed.

4) The assessee is neither required to maintain any books of Account U/S 44AA nor he is required to get his accounts audited U/S 44AB.

5) If any assessee claims that his income is lower than the estimated income then he will have to maintain books of account and get his accounts audited.

*****

Disclaimer: This update is not an advertisement or any form of solicitation. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we Endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in future. Readers should obtain appropriate professional advice.

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Author Bio

Qualification: CA in Practice
Company: RSSB & Associates
Location: Delhi, Delhi, India
Member Since: 05 Jun 2017 | Total Posts: 5
Rohit Saluja is a Bachelor in Commerce from Delhi University and a fellow member of Institute of Chartered Accountants of India, New Delhi. He is the founder partner of the chartered accountant firm “RSSB & Associates” since 2012. Rohit Saluja carries extensive professional experience in View Full Profile

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