This article will mainly focus on the various aspects concerning provisions of Section 44AD. Section 44AD of The Income Tax Act 1961 was introduced to ease the burden of small taxpayers, make them more tax compliant with minimal compliances and expand the tax base. After Finance Act, 2017, there are major amendments which have been taken place in this section those all amendments are covered in this article.
1. The assessee who is eligible for this section is a person resident in India who is an individual, a Hindu Undivided Family or a Partnership Firm (Except LLPs).
2. The assessee should be engaged in any business other than mentioned in section 44AA or Commission or Brokerage or any agency business.
3. If assessee wants to opt for this scheme then his total turnover or Gross Receipts in previous year of the business should not exceed Rs 2 crore
In case of a person adopting the provisions of section 44AD, income is computed on presumptive basis at the rate of 8% of the turnover or gross receipts of the eligible business for the year or 6% of the turnover or gross receipts of the eligible business for the year only if turnover/gross receipt is received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date of filing of return under section 139(1)
So basically now there are two rate of Income Presumption are there in section 44AD
The person who is eligible for this scheme is also important. Eligible persons are mentioned below:
i. A person carrying on profession as referred to in section 44AA(1) i.e.,
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);
ii. A person earning income in the nature of commission or brokerage or;
iii. A person carrying on any agency business.
iv. A person who is in the business of plying, hiring or leasing goods carriage
All deductions under section 30 to 38, including depreciation and un-absorbed depreciation are deemed to have been already allowed and no further deduction is allowed under this section.
Even from AY 2017-18, in case of firm, the normal deduction in respect of salary and interest to partners under section 40(b) will also not allowed.
Purpose of section 44AD is to grant relief from maintenance of books of accounts and audit. The purpose of widening the scope of this plan is to reduce the compliance and administrative burden on small businessmen and tone down them from the requirement of maintaining books of account. Such assessees opting for the presumptive scheme are not required to maintain books of account under section 44AA and also not required to get them audited under section 44AB.
This will encourage the assessee to pay taxes without any hurdle of compliance of audit and books of accounts.
One more benefit which has been given to assessee is that if he opts for section 44AD he is not liable to get his account audited even if his gross receipts are up to 2 crores.
In any other case this benefit is only up to 1 crores i.e. 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.
(Crux- section 44AD give benefits of exemption from audit up to 2 crores which would otherwise be up to 1 crores.)
If the assessee is carrying on more than 1 business, which is occur very often, then the consolidated turnover (all business turnover) will be taken to compute gross sales figures under section 44AD.
If on the other hand assessee is carrying on business as well as professional income than section 44AD only apply to income earned under business income. Professional income would be taxed either on normal rates or for that he can opt for section 44ADA.
The written down value of the asset of such business shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the deduction for depreciation for each of relevant assessment years.
Deduction on account of depreciation is not obtainable. However, the WDV of any asset used in the business covered under the scheme of section 44AD shall be calculated as if depreciation as per section 32 is claimed and allowed. This means WDV of assets for the purpose of income tax would be taken after deducting depreciation. Thus, even though no depreciation is available separately, yet for purpose of computation of the WDV of the asset, depreciation will be deducted.
Eligible assessee who opts for Section 44AD is now required to pay advance tax on 15th march of the previous year for which the income is to be assessed.
Now if a person chose option to get out of scheme in any P.Y. succeeding to the P.Y. in which he opt for the scheme, than he can’t avail the benefit of the scheme for next 5 years succeeding to the year in which he opt out of the scheme.
This can be understand by following example.
Assessee opt for scheme in
Get out of scheme in AY 2020-21
Now he cannot claim exemption from AY 2020-21 to AY 2024-25
(Republished with Amendments)