Explore the computation of profits and gains of business on a presumptive basis under Section 44AD of the Income Tax Act, 1961. Understand the eligible criteria, conditions for presuming business profit at 6%, and the types of businesses that qualify. Know who is an eligible assessee, what constitutes an eligible business, and the provisions for continuity. Learn about the exceptions, implications of discontinuation, and the documentation and auditing requirements for eligible assesses.
Profits and Gains of business on presumptive basis (Section 44AD of the Income Tax Act, 1961)
Taxable Profits & Gains
8% of total turnover or gross receipts of an eligible assesse engaged in eligible business during the previous year will be considered as profits and gains from business.
In some cases 6%
Following two conditions must be fulfilled to presume business profit @6% instead of 8%.
(i) The amount of total turnover or gross receipts is received by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account or through other electronic mode such as Credit card, Debit card, Net banking, IMPS, UPI, RTGS, NEFT, BHIM Aadhar pay.
(ii) The amount received through banking mode mentioned above has actually been received during the relevant previous year or on or before the due date specified in Section 139(1) in respect of that previous year.
Note: (i) An eligible assessee may optionally declare taxable profit more than 8% or 6%.
(ii) Turnover should not include indirect taxes for Sec. 44AD
| Example: | |
| Taxable value of sales | 1,00,000.00 (Turnover for Sec. 44AD) |
| CGST | 9,000.00 |
| SGST | 9,000.00 |
| 1,18,000.00 |
(iii) Where a part of the turnover or gross receipts is received in cash and another part through banking mode, 8% profit shall be presumed on the part of turnover or gross receipts which is received in cash and 6% profit shall be presumed on the part which is received in banking mode.
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- Receipts by way of bearer cheque shall be considered as cash received.
Who is eligible assessee?
The following resident assesses may declare profits & gains on presumptive basis:
(i) Individual
(ii) HUF (Hindu Undivided Family)
(iii) Partnership Firm (not an LLP)
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- LLP => Limited Liability Partnership Firm registered under the Limited Liability Partnership Act, 2008.
Note: An otherwise eligible person can’t declare income on presumptive basis under section 44AD if he/it claims deduction u/s 10A or 10AA or 10B or 10BA or deduction under Chapter VIA under heading C during the relevant assessment year.
Section 10A – Provisions for newly established undertakings in free trade zone, etc.
Section 10AA – Provisions for newly established units in special economic zones
Section 10B – Provisions for newly established hundred percent export-oriented undertakings.
Section 10BA – Provisions for export of certain articles or things
Chapter VIA under heading C, deductions in respect of certain incomes. Sections 80 H to 80RRB are covered under heading C of Chapter VIA of the Income Tax Act, 1961.
What is eligible business?
Following business are not eligible to declare profit under section 44AD
1. Any business whose total turnover or gross receipts in the previous year exceeds an amount of two crore rupees.
2. Business of plying, hiring, leasing goods carriages referred to in Section 44AE
3. Any profession as referred to in Section 44AA(1)
4. Income in the nature of commission or brokerage.
5. Any agency business.
Notes:
(i) Following professions have been referred to in Section 44AA(1):
Legal • Medical • Engineering • Architectural Profession • Profession of Accountancy • Technical Consultancy • Interior Decoration • Authorized Representative • Film Artist • Company Secretary • Information Technology
(ii) No further deduction relating to business expenditure as referred to in Section 30 to 38 under the head profits and gains of business or profession shall be allowed and be deemed to have been already given full effect to.
(iii) The written down value of any asset of an eligible business shall be deemed to have been calculated as if the Assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years in which incomes were declared on presumptive basis u/s 44AD.
Provisions for Continuity
(i) Where an assessee declares profit on presumptive basis u/s 44AD for any previous year, he/it should continue to declare presumptive profit under this section for five consecutive previous years subsequent to the first previous year. If an assessee does not declare presumptive profit u/s 44AD for any of the five previous years then he/it shall not be entitled to declared presumptive profit for five consecutive previous years subsequent to that previous year.
Further, due to above mentioned discontinuation to follow Section 44AD such assessee has to keep and maintain books of accounts and other documents as specified in Section 44AA(2) and also get the accounts audited by a practicing Chartered Accountant and furnish the audit report as required u/s 44AB, provided total income of the assessee exceeds the maximum amount which is not chargeable to income tax.
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