Under this section, an eligible assessee engaged in eligible business with turnover less than 2 Crore can consider his taxable business income (PGBP) as –

1. 6% of his digitally* received turnover or gross receipt [Only for AY 2018-19]; and

2. 8% of his remaining turnover or gross receipt

The 6% or 8% is the minimum taxable limit and declaration of business income below this limit will cause a taxpayer to maintain proper books of accounts in order to justify his low income. He would also be required to file tax audit if his total income exceeds the maximum amount not chargeable to income-tax [In AY 2018-19 for normal taxpayer it is Rs.2.5 lakh]

 Income at a higher rate, i.e. higher than 8% can be declared if the actual income is higher than 8%.

No other deductions are allowed from the computed income, as we can see here that after applying these rates we get the net taxable business income (PGBP). However, deduction of chapter VI-A is available.

*Digitally means- Money received through an account payee cheque or an account payee bank draft or RTGS/NEFT/ECS/Debit or Credit Card/IMPS during the previous year or before the due date specified in sub-section (1) of section 139 in respect of that previous year.

Example: Mr.Ram, a trader during the FY 2017-18 receives 12 lakh in cash and 14 lakh digitally. He also digitally receives Rs.6 lakh on 15th July 2018 relating to FY 2017-18. Calculate PGBP taxable income under section 44AD.

Solution: Assuming due date for filling u/s 139(1) be 31st July 2018-

1. On Digitally received turnover = (14+6) * 6% = Rs.1,20,000/-

2. On Turnover received in Cash = 12 * 8% = Rs.96,000/-

Therefore, the taxable income under the head PGBP is Rs.2,16,000 (120000+96000)

Who is Eligible for Section 44AD? 

An eligible assessee with eligible business is eligible for section 44AD

1. Eligible Assessee: Following taxpayers are eligible for section 44AD

i. Resident Individual

ii. Resident HUF

iii. Resident Partnership Firm (LLP)

Further, the above 3 taxpayers shall not claim any deduction under section 10A/10AA/10B/10BA or under section 80HH to 80RRB in the relevant year.

2. Eligible Business under section 44AD

i. Any business except the business of plying, hiring or leasing goods carriages referred to in section 44AE; and

ii. Whose total turnover or gross receipts from all his businesses in the previous year does not exceed 2 Crore.

Who is not eligible for section 44AD? 

Following taxpayers are ineligible for this section-

1. Professional (u/s 44AA). As they are already covered under section 44ADA

2. Agency Business

3. Person earning commission or brokerage income 

Opting Presumptive Taxation or Scheme for at least 5 years [Section 44AD(4)]

Once a taxpayer opts for this scheme than it would be beneficial for him to file his next 5 year’s income tax return in the same scheme only. (From AY 2018-19)

But

If he decides to OPT-OUT of the scheme in any of the next 5 years than he will be DISALLOWED from this scheme for the next subsequent 5 years.

Not only this, If his total income exceeds the maximum amount not chargeable to income-tax [In AY 2018-19 for normal taxpayer it is Rs.2.5 lakh] than-

1. He has to keep and maintain books of accounts [section 44AA(2)], and

2. He will also be required to get his accounts audited (Tax Audit under section 44AB)

It’s a sort of penalty

Confused? Let’s understand with an example

Particulars Assessment Year
Mr. Ram selected to file income tax return under section 44AD 2017-18, 2018-19 and 2019-20
Subsequently, he Selected to file normal income tax return i.e NOT under section 44AD 2020-21
He will be DISALLOWED to file income tax return under presumptive taxation scheme for the next 5 assessment years 2021-22 TO 2025-26

In addition to the prohibition from filing return under section 44AD, Mr.Ram will also be required to maintain books of accounts and file Tax audit if his total income exceeds the maximum amount not chargeable to income-tax.

Other Important Points under section 44AD

1. Expenses relating to PGBP will not be allowed. [section 30-38 of Income Tax]

2. Although depreciation expense is not allowed, the fixed asset will get depreciated normally as if depreciation has actually been allowed.

3. Assessee under presumptive taxation is also liable to pay advance tax. They can pay 100% of advance tax by 15th March of the financial year.

4. Assessee under presumptive taxation can take the deduction of Chapter VI-A.

So the Big news is,   

Tax Audit under section 44AB(e) will be necessary if assessee’s total income exceeds the maximum amount not chargeable to income-tax AND-

(i) He declares his income below 8% or 6%; or

(ii) He OPT-OUT of the scheme within 5 years of his first OPT-IN.

Author Bio

Qualification: CA in Job / Business
Company: N/A
Location: DELHI, New Delhi, IN
Member Since: 24 Feb 2018 | Total Posts: 1

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Category : Income Tax (26738)
Type : Articles (16226)
Tags : section 44AB (135) Section 44AD (120) Tax Audit (264)

13 responses to “Section 44AD: Presumptive Taxation for Business Income for AY 2018-19”

  1. satyanarayan chatla says:

    The main purpose of this section is diluted.

  2. vidya says:

    If One Opts out of the scheme in third year, then 44Ad will not be available for next five year.
    In third year Audit will be applicable.
    I want whether Audit will also be applicable in the next five years in which 44AD not allowed even though we declare income above 8%?

  3. CA Hitesh says:

    WHAT ARE OBJECTIVES OF ARUN JATITELY WANTS TO ARCHIVE BY BRINGING these AMENDMENTS OF 5 YEARS COPMULSION.HOW ONE CAN PREDICT WHAT WILL HAPPEN IN 5 YEARS.THIS AMENDMENT WILL LEAD TO LEVY TAX ON LOSSES !! I HAVE SEEN THAT AFTER THE DEATH OF FATHER, HIS UNDER GRADUATE SON INCURRED HEAVY LOSSES BY BAD DEBTS, REDUCED TURNOVER. THE AMENDMENT IS UNJUST UNFAIR AND UNCONSTITUTIONAL.ICAI MUST FILE WRIT AGAINST THIS PROPOSAL.UNLUCKILY OUR FM HAS 1 GOAL I.E.TO COLLECT MAXIMUM TAX. HE IS FIT FOR TAX RECOVERY OFFICER JOB TO CATH HOLD OF MODIS & MALLAYAS, HAS VERY NARROW VISION.

  4. sudarshan says:

    Yes. but they have substituted subsec 5 . In the new subsection this conditions is introduced.

  5. CA Hitesh says:

    If after opting for presumptive tax in the 1st year, the TO increases above 2 crores in next year, the tax audit is mandatory.And again in 3 rd year TO falls below 2 crores, the period of 5 years would be counted from 3 rd year. In short, clarity is needed in case of fluctuating TO

  6. MINAL JAIN says:

    whether TDS are required to be deduct if he opt 44AD.

  7. SUNIL PATIL says:

    useful and timely information.

  8. VIKRANT BHARDWAJ says:

    YES I AM ABSOLUTELY AGREED WITH THESE WORD OF SH B.S.K.RAO Mostly IAS/IRS officials sitting in AC Rooms are involved in framing laws in India. These IAS/IRS Officials are grown up in the atmosphere of slaves & dogs in their house. Hence, they do not understand practical problems at gross root level. CONSEQUENTLY SAME CAN BE SEEN IN GST IMPLEMENTATION WITHOUT GIVING PROPER TIME AND GUIDANCE VERY COMPLEX SOFTWARE IS IMPLEMENTED MISTAKE IS HUMAN PHENOMENA WHAT IS THE USE OF THIS SOFTWARE IF WE CANT’T OUR MISTAKE AND IN SPITE OF THAT PENALTY CLAUSE ARE VERY HARSH AND DIFFICULT GST COUNCIL HAS TO GIVE TRIAL UPTO 31ST MARCH 2018 TO FULLY OPERATION OF THIS SOFTWARE SO THAT PEOPLE CAN BETTERLY. GST SITE IS MOSTLY ON TRIAL BASIS CLOSED AT NIGH UPTO 3:30 AM AND ANY QUERY REPLY COMES FROM GST HELP DESK AFTER 20 DAYS WITH COMMENT YOUR PROBLEM IS RESOLVED WITHOUT ANY ACTION HELP DESK IS NOT FULLY OPERATIVE AND DECISION MAKING EVEN INCOME TAX HELP DESK IS EFFICIENTLY REPLIED THE QUERY . SO GST HAS TO THINK ABOUT THIS.

  9. Gokulesh says:

    Respected sir, is there any clarity on whether assessee can claim interest on capital or remuneration to working partners? Because they fall beyond section 38. Please clarify on this point taking into account the present stand of law as this article is silent on above issue although it is clear on. Sec 80 dedication. Thanking you Gokulesh

  10. Tax.Adv.BSKRAO says:

    Why complicated tax laws in India only ? Reasons are as under:-

    (1) Persons involved in framing laws in India does not have legal background. Even in Ministry of law who approve the laws does not have persons with legal background.
    (2) Mostly IAS/IRS officials sitting in AC Rooms are involved in framing laws in India. These IAS/IRS Officials are grown up in the atmosphere of slaves & dogs in their house. Hence, they do not understand practical problems at gross root level.
    (3) IAS/IRS Officials wants to show their supremacy by turning out the verdicts of High Courts & Supreme Court of India by amending the laws as such.
    (4) Indian Politicians are not educated enough to understand the tax laws framed by IAS/IRS Officials to raise objection in the legislature. Hence, they prefer not to be present in legislature while passing money bills.
    (5) Stake holders suggestions are not considered by respective Ministry, but kept aside blindly.

    B.S.K.RAO, B.Com, LL.B, MICA,
    Auditor & Tax Advocate,
    BDKRAO, Beside SBI,
    Shimoga-577201, KARNATAKA
    E-Mail : raoshimoga@gmail.com
    Mo No. : 0-9035089036

  11. ASHOK KUMAR KANUNGA says:

    A.Y 2017-18 –DECLARED N/P 8%–T.O BELOW 2 CRORS— INDIVIDUAL CASE. NOW A.Y 2018-19–T.O IS MORE THAN 2 CRORS — HAVE TO DO COMPULSORY AUDIT U/S 44AB. IF NEXT YEAR THAT IS A.Y 2019-20. T.O BELOW 2 CRORS BUT N/P DECLARED MORE THAN 8% THEN TAX AUDIT U/S 44AB IS REQUIRED OR NOT??

  12. RITESH BAHETI says:

    I THINK CONDITION OF INCOME EXCEEDS Rs 2,50,000/- IS NOW REMOVED FROM AY 2018.2019 & THEREFORE “if assessee’s total income exceeds the maximum amount not chargeable to income-tax, Tax Audit under section 44AB(e) will be necessary ” IS NOT CORRECT
    I THINK AS PER SECTION 44AD, EVEN THOUGH HIS INCOME DOES NOT EXCEEDS MAXIMUM AMOUNT CHARGEABLE TO INCOME TAX HE HAS TO SHOW 8 OR 6% AS CASE MAY BE OR GET HIS ACCOUNTS AUDITED
    COMPARE THE PROVISIONS OF 44AD UPTO 31.03.2017 & 31.03.2018 NOW THEY HAVE REMOVED THE WORD, “INCOME DOES NOT EXCEEDS MAXIMUM AMOUNT CHARGEABLE TO INCOME TAX ”

    PLEASE CONFIRM THE ABOVE

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