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
– 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”
*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%.
♦ 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
♦ 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.
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)