TAXABILITY OF PRESUMPTIVE INCOME UNDER SECTION 44AD OF INCOME TAX ACT, 1961
As per Income Tax Act 1961 , a person engaged in business or profession are mandated to maintain books of accounts and undergo audits. To alleviate the burden on small taxpayers, the IT Act introduced the presumptive taxation scheme under Sections 44AD, 44ADA, and 44AE. This scheme allows individuals to declare income at a specified rate, granting them exemption from maintaining books of accounts and undergoing audits. This article discusses the provisions of Section 44AD in detail.
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Who can use presumptive taxation scheme under section 44AD:
This scheme can be used by resident individuals/HUFs/Partnership firms (not LLP) engaged in any business (not specifically restricted below). But, this scheme cannot be used by such taxpayer who has made any claim towards deductions u/s. 10A/10AA/10B/10BA or 80HH to 80RRB in the FY.
Who cannot use presumptive taxation scheme under section 44AD:
(i) Business of plying, hiring or leasing of goods carriages referred to in section 44AE;
(ii) Agency business;
(iii) Commission or brokerage;
(iv) Profession as referred to u/s. 44AA(1);
(v) A taxpayer whose gross receipts/total turnover in the FY exceeds Rs.2 Cr (3 Cr in case cash receipts during the FY does not exceed 5% of total turnover/receipts).
Computation of taxable income u/s.44AD:
In this scheme, income is calculated presumptively based on a fixed rate of 8% of the turnover or gross receipts of the eligible business for the year. However, if the turnover or gross receipt is received through specific electronic means or by account payee cheque/bank draft before the due date of filing the return under section 139(1), the income is computed at a reduced rate of 6%.
Alternatively, the taxpayer has the option to voluntarily disclose business income at a rate higher than 8% or 6%, as applicable. By choosing to file returns under Section 44AD, the taxpayer is not allowed to claim deductions provided under Section 30 to Section 38 of the Income Tax Act. This includes depreciation and other deductions.
The income calculated using the prescribed rate in this presumptive taxation scheme will be considered as the final taxable income for the eligible business. No other expenses will be allowed or disallowed. Although no deduction is permitted for depreciation, the Written Down Value (W.D.V) of any asset used in the business will be calculated as if depreciation has been allowed.
Consequences of opting out from presumptive taxation scheme:
Once a taxpayer opts for presumptive taxation scheme, he is required to follow the same scheme for next 5 years. If he fails to do so, presumptive taxation scheme will not be available for him for next 5 years.
ITR filing under presumptive taxation scheme:
ITR-4 (Sugam) is the ITR form for taxpayers who opt for a presumptive income scheme u/s. 44AD/44ADA/44AE. However, if the turnover exceeds Rs.2 crore, the taxpayer will have to file ITR-3.
Conclusion: Section 44AD of the Income Tax Act 1961 provides a simplified tax approach for eligible taxpayers, freeing them from the burden of maintaining accounts and audits. Understanding the computation, deductions, and implications of this presumptive taxation scheme is essential for small businesses and individuals to make informed tax decisions.
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my firm is proprietor frim , can i claim interest payment to any one . my interest on fd in firm name is exempted ?
my mother has a cake baking business that she wants to register as company as it is growing and cannot be handled thru cash only mode
will she fall under section 44d and what is process to register her business as individual business
I am willing to engage someone to help with completing the whole process including opening current account
appreciate your help
I am working as technical consultant. Mostly work from remote or with hiring agency like Upwork and Freelancer. Which section is applicable to me.
44 AD, 44 AE or 44 ADA.
In case, I also start doing business of providing goods as an intermediatory.
Which section will be applicable to me. 44 AD, 44 AE or 44 ADA.
What is the turnover limit for 44 AD, 44 AE or 44 ADA.
If the TURNOVER is less than the limits, whether is it compulsory to offer 8%/6% u s 44AD if the accounts are not audited? or is it the option of the assessee?
The article says ” For partnership firms opting for Section 44AD, they can claim additional deductions under Section 40(b) for remuneration or interest paid to partners. However, this deduction is subject to certain prescribed limits under Section 40(b). Choosing to file returns under Section 44AD also means that no disallowance will be permitted as per Section 40, Section 40A, and Section 43B.”. I request please check this fact, as I understand, deduction as per 40(b) is not allowed.
You are right Srinath. But, nothing like this also mentioned anywhere in this article.
ITR 4-Consultant fees Rs.4lacs received under sec.44ADA-retired pensioner-pensionRs.4 lacs-whether any deductions allowed under new/old
tax regime total income Rs.8 lacs
Section 44ADA is applicable to some specified professionals engaged in Legal, Medical, Engineering/Architectural, Accountancy, Technical Consultancy, Interior Decoration, film artists, Information technology, or any other profession specified by CBDT. So, in order to claim the benefit of Section 44ADA, first of all you need to check, whether the retired assessee is engaged in any one of such specified profession. If yes, then he will definitely get the benefit of this section, as the gross receipts of the person is below rupees 50 lakhs. But his income under consultancy will only be derived as per section 44ADA and this provision is applicable both under new and old tax regime. Pension received by the person will be taxable as per the normal slab rate applicable to him.