1. Applicability of Section 44AD 

Any business which has a turnover of less than Rs. 2 crores can opt for presumptive taxation under this section.

Following class of businesses are out of scope of Section 44AD.

– Life Insurance Agents

– Commission of any kind

– Running the business of Plying, Hiring or leasing Goods carriages

There has been insertion by finance act 2012 in section 44AD to exclude applicability of presumptive provision on following—-

– Person carrying profession as mentioned u/s 44AA(1) –legal, medical, engineering, or architectural or accountancy profession or technical consultancy or interior decoration or any other profession notified by the board.

– Person earning commission in nature of brokerage.

– Person carrying agency business

2. Eligible Assessee for Section 44AD

– Any resident Individual ,

– Resident HUF,

– Resident Partnership firms(excluding LLP)

– and who has not claimed deduction u/s 10AA or

– deduction under any provision of chapter VI-A under heading “C-Deduction in respect of certain incomes”

3. Manner of Computation of taxable business

– Assesee opting for presumptive taxation must declare profits of 8% for non digital transactions and *6% for digital transactions as the case may be.

*provision made effective from year 2017-18 onwards.

The presumptive income computed as per the prescribed rate is the final income and no further expenses are allowed/ disallowed.

–  Under Section 44AD Interest and Remuneration to Partners are not

– No deduction of interest and remuneration paid to partners by firm as per section 40(b) from the presumptive income under section 44AD allowed from A.Y. 2017-18. So from F.Y. 2016-17 entire income of the firm, without deduction for partner’s salary/interest paid within the permissible limits set out in section 40(b) is taxable at flat rate of tax at 30%.

4. Certain Other Points of Consideration

♦ Maintenance of Books of Accounts

– An assessee opting for the above scheme shall be exempted from maintenance of books of account related to such business as required under section 44AA.

♦ Declaration of Higher Income

– The assessee can voluntarily declare a higher income in his return

♦ Advance Tax

– Taxpayers who are opting for presumptive taxation Scheme of Section 44AD are required to pay 100% of advance tax by 15th March.

♦ In case assessee claims that he has earned income lower than specified percentage and such income is more than maximum amount not chargeable to tax, Ss. 44AD(5) and 44AA(2)(iv), mandates him to maintain books of accounts and other documents as specified u/s 44AA, get them audited from the accountant and furnish report as required u/s 44AB.

5. New Condition introduced

The new condition has been added by substituting sub section 4 of Sec 44 AD as per which-

If an assesse is opting for presumptive taxation , then it has to be continued at least for 5 years in continuation. In case, the assesse decides to show and file profits as per regular business before the end of these 5 years, then he will lose presumptive benefits and disallowed from presumptive taxation for the subsequent 5 years as well.

(Author Shubhi Goel can be reached at Shubhigoel1989@gmail.com)

More Under Income Tax

19 Comments

  1. MMSapra says:

    Sir my client firm was audited in A Y 2017.18 us 44ad his turnover 1170000 but now turnover rs. 4400000 n coming next year also turnover is less than 50laks should be audited or not this year

  2. CA. M. Lakshmanan says:

    Under Section 44AD Interest and Salary are not allowed from A.Y. 2017-18 and the Advance tax is to be paid in one installment on or before 15th March.

  3. vikesh says:

    sir, iam panning to file my return as per sec 44 AD, as i should not maintain accounts… sir it is mandatory to maintain my receipts??

  4. Shirish says:

    Income tax act allows to file the return on estimation basis. My friend doing business of ‘tourist’, as the tds deducted is not paid, paid but not matching due any other reason. Now can i file my income tax return on estimation basis and paid tax. And after when company will pay TDS can i refile said years returns for claiming refund.

  5. atpanjwani$associates says:

    DEAR SIR
    44AD WHICH ONE UNDER TURNOVER 1 CRORE WHAT IS LAST DATE OF FILLING RETURN DATE 30-9-2014 OR 30-11-2014 LESS THAN 1 CRORE SALE NO OTHER INCOME

  6. shailesh suthar says:

    Please i want to file return for civil contract under sec 44 ad his gross receipt is Rs.4685200/- and Tds of Rs.46852 and material provide of Rs.2315742/- so please me guide in this matter.

  7. latish says:

    SIR,
    MY BUSINESS IS SEMI-WHOLESALER IN CLOTH. MY TOUR OVER IS RS.45,00,000/- AND TOTAL PROFIT IS RS.1,75,000/-.(I.E- BELOW EXEMPTION LIMIT). MY QUES. IS, IT IS COMPULSORY TO MAKE AUDIT OR NOT.
    PLEASE GIVE ADVICE IT IS ARGENT.
    THANK YOU

  8. Dharmesh says:

    What will be the situation if the assessee has loss in his business and wishes to claim such loss. whether s. 44AD will be compulsory as 44AD(1) requires the minimum profit of 8%. In this case since i do not fall within the conditions of s. 44AD(5) (since my income is below taxable limits), i need not maintain the books and get them audited. If 44AD(5) not applicable, will fall under 44AD(1) automatically?

  9. Darshan says:

    I have Two ques, 1) In computing Tax liability U Sec. 44 AF or 44AD, what is the Turnover to be declared of the Assesse who is engaged in retail trade attracting local VAT @ 14.5 %, example Goods sold by him under retail trade is 20 Lakhs and + VAT at 14.5% i.e 2.90 Lakhs =22.9 Lakhs or only Rs 20 Lakhs on which he/she can claim deemed profits @ 8% or more? and

    Q. 2) In computing Tax liability U Sec. 44 AF or 44AD,if the assesse is having net profits on the T.O Exceeding 14 % and declares profits @ 8 Percent as taxable Income, will it be acceptable by the A.O.?

    Please Guide

  10. shubhi goel says:

    Change is____
    There has been insertion by finance act 2012 in section 44AD to exclude applicability of presumptive provision on following—-
    Person carrying profession as mentioned u/s 44AA(1) –legal, medical, engineering, or architectural or accountancy profession or technical consultancy or interior decoration or any other profession notified by the board.
    Person earning commission in nature of brokerage.
    Person carrying agency business

  11. shubhi goel says:

    Section 44AD (1) starts with wordings “Notwithstanding anything contrary contained in S. 28 to 43C”. Clearly, Section 44AD will override the said sections and thus the profit to be taken for computation of limits of remuneration is the presumptive profit as computed under subsection (1) of section 44AD.

    So, for example, turnover of the business is Rs.60,00,000/-
    Profit @ 8% shall be Rs. 4,80,000/-
    Remuneration as per deed is Rs.1,50,000/-
    Interest is Rs. 1,00,000/-

    The restriction will be cross checked taking Rs. 4,00,000/- as the base
    So, on first Rs.3,00,000/-, 90% i.e. Rs. 2,70,000/-
    On balance Rs. 1,80,000/-, 60% i.e. Rs. 108,000/-

    Total limit is Rs. 3,78,000/-

    Actual remuneration paid is Rs. 1,50,000/- which is well within the limit, thus allowed.

    The computation will be

    Profit As Per S. 44AD Rs. 4,80,000
    Less: Remuneration Rs. 1,50,000
    Less: Interest Rs. 1,00,000

    Net Profit (taxable) Rs. 2,30,000

  12. Sheetal says:

    Sir
    Thank you for a valuable information.

    Can you provide information regarding method of calculation of interest on partners capital when books of accounts not maintained and income calculated on presumptive basis u/s 44AD.

Leave a Comment

Your email address will not be published. Required fields are marked *