Special Provisions for computing Profits and Gains Of Business on Presumptive Basis (Section 44AD)

Eligible Business 

The presumptive Taxation scheme under Section 44AD covers all small businesses with total turnover/gross receipts of up to ₹ 200 Lakh (Except the business of plying, hiring and leasing goods carriages covered under section 44AE).

Eligible Assesses

Resident Individuals, HUFs and Partnership Firms (but not LLPs) and who has not claimed deduction under any of the section 10AA or deduction under any provisions of Chapter VI A under the heading ” C- Deductions in respect of certain Incomes ” in the relevant assessment year would be covered under this scheme.

Presumptive Rate

The Presumptive Rate would be 8% of total Turnover or Gross Receipts.

However the presumptive rate of 6% of total turnover or gross receipts will be applicable in respect of amount which is received

1. By an account payee cheque or

2. By an account payee Bank Draft or

3. By use of electronic Clearing System , through a bank account or through such other prescribed electronic modes.

during the previous year or before the due date of filing of return under section 139(1) in respect of that previous year.

However the assessee has the option to declare in his return of income, an amount higher than the presumptive income so calculated, claimed to have actually earned by him.

 No further Deduction would be allowed

All deductions allowable under sections 30 to 38 shall be deemed to have been allowed in full and no further deduction shall be allowed.

Written Down Value of the asset

The WDV of any asset of such business shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the deduction in respect of depreciation for each of the relevant assessment years.

Relief from maintenance of books of account and audit

The intention of widening the scope of this scheme is to reduce the compliance and administrative burden on small businessmen and relive them from the requirement of maintaining the books of account. Such assessees opting for the presumptive scheme are not required to maintain books of account under section 44AA or get them audited under section 44AB.

Higher threshold for non-audit of accounts for assessees opting for presumptive taxation under section 44AD

Section 44AB makes it obligatory for every person carrying on business to get his accounts of any previous year audited if his total sales, turnover or gross receipts exceed ₹ 1 Crore.

However, if an eligible person opts for presumptive taxation scheme as per this section 44AD(1), he shall not be required to get his accounts audited if the total turnover or gross receipts of the relevant previous year does not exceed ₹ 2 Crore.

Advance Tax 

The eligible assessee is required to pay advance tax by 15th March of the Financial Year.

Person not eligible for Presumptive Taxation Scheme 

The following persons are specifically excluded from the applicability of the presumptive provisions of section 44AD:-

1. A  person carrying on profession as referred to in section 44AA (1) i.e., legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the board (namely, authorized representatives, film artists, company secretaries, and profession of information technology have been notified by the board for this purpose);

2. A person earning income in the nature of commission or brokerage ; or

3. A person carrying on any agency business.

Not eligible to opt for presumptive taxation under this section for 5 Assessment Years 

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 consecutive assesssment years relevant to the previous years 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 sub section(1). This is provided in sub section (4).

Maintain Books of Accounts and audit if sub section (4) attracted 

An eligible assessee to whom the provisions of sub section (4) are applicable and whose total income exceeds the basic exemption limit has to maintain books of account under section 44AA and get them audited and furnish a report of such audit under section 44AB. This is provided in section 44AD(5).

Author Bio

Qualification: CA in Practice
Company: P Taurani And Company
Location: Bhopal, Madhya Pradesh, IN
Member Since: 16 Apr 2020 | Total Posts: 3

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9 Comments

    1. piyushtaurani says:

      The threshold limit of Rs 1 crore for a tax audit is proposed to be increased to Rs 5 crore with effect from AY 2020-21 (FY 2019-20) if the taxpayer’s cash receipts are limited to 5% of the gross receipts or turnover, and if the taxpayer’s cash payments are limited to 5% of the aggregate payments.

  1. CA. M. Lakshmanan says:

    Having opted for this scheme and declared income the specied persentages (8% or 6%) If the assessee declares lower income in any one of the subsequent years the asessee shall not be eligible to claim the benefit of section 44AD for the next five years. But in the article it has been stated that if the declares profit for any of the five consecutive assesssment years relevant to the previous years succeeding such previous year not in accordance with the provisions of sub section (1), which is not correct. There is no mention about the number of years in the section. Even if he optes out in a single year he can not opt for next five years.

    1. piyushtaurani says:

      Sir, section 44AD (4) clearly mentions that if an assessee 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 .

      1. CA. M. Lakshmanan says:

        Yes; What you have stated in the article is correct. Does it mean that after five years the assessee can opt out of the scheme and he can opt for the scheme whenever he wants? Just for academic purpose.

  2. ramji mahadevan says:

    could a GST practitioner (not CA) file ITR on presumptive basis Sec 44 AD- He provides GST filing, bookkeeping, ITR filing services (only Mcom qualified, not CA)

    1. piyushtaurani says:

      No section 44AD(6) specifically excludes certain professions which includes services that you are providing like book keeping ……etc So you van not take benefit of Section 44AD

    1. piyushtaurani says:

      For Business of Transport it is Section 44AE, there are all together different under this section , will definitely give an article on this particular section.

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