Special provision for computing profit and gains of business on presumptive basis wef 1.4.2011 ie. from the AY 2011-12
44AD. (1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head ‘Profits and gains of business or profession’:
If the turnover of the eligible assessee from eligible business is equal to or less than 2 crores ; then profit @ 8 % or more shall be deemed to be his profit if claimed to have been earned in the return.
The assessee is not required to maintain books of accounts but he has to maintain such books which justifies his turnover.
Proviso to the section inserted wef 1.4.2017 i.e. from the AY 2017-18
Provided that this sub-section shall have effect as if for the words “eight per cent”, the words “six per cent” had been substituted, in respect of the amount of total turnover or gross receipts which is received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed during the previous year or before the due date specified in sub-section (1) of section 139 in respect of that previous year.
If the payment for the sales is received in full or partly through banking channel, the assessee is required to claim to earn minimum profit of 6 percent on that part of the turnover and payment for the same has been received in bank in the year of sales or before due date of filing of the return u/s 139(1).
(2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed.
Further deduction allowable under the provisions of sections 30 to 38 shall not be allowed under this section and it is deemed to be allowed already.
(3) The written down value of any asset of an eligible business shall be deemed to have been calculated as if the eligible assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.
No further depreciation is allowed on the written down value and deemed to be allowed already.
(4) 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 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 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 can be understood by the following example
The Previous year is 2021-22, the Assessment year is 2022-23
Succeeding the previous year 2021-22 is F.Yr 2022-23
The first assessment year is 2023-24(Previous Year is 2022-23)
Second assessment year is 2024-25
Third assessment year is 2025-26
Fourth assessment year is 2026-27
Fifth assessment year is 2027-28
Now suppose for the assessment year 2026-27 ( previous year is 2025-26) profit is not shown as per section 44AD(1) of the Act than for the next 5 assessment years subsequent to the assessment year 2026-27 he can not file his return of income as per section 44AD (1)
Subsequent assessment years are , AY 2027-28, AY 2028-29 , AY 2029-30 , AY 2030-31 , AY 2031-32 . In these years he shall be getting his books audited by a CA or shall be required to prepare his books and file Balance Sheet with the department as the case may be whatever may be his turnover and whatever percentage of profit .
(5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee to whom the provisions of sub-section (4) are applicable and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.
Assessee is required to keep and maintain such books of accounts as required u/s 44AA(2) of the Act and get them audited by a Chartered Accountant if the case of the assessee falls in section 44AD(4) of the Act .
The provisions of section 44AD shall not apply in the following cases
(6) The provisions of this section, notwithstanding anything contained in the foregoing provisions, shall not apply to—
(i) a person carrying on profession as referred to in sub-section (1) of section 44AA;
(ii) a person earning income in the nature of commission or brokerage; or
(iii) a person carrying on any agency business.
Eligible assessee
Explanation.—For the purposes of this section,—
(a) “eligible assessee” means,—
(i) an individual, Hindu undivided family or a partnership firm, who is a resident, but not a limited liability partnership firm as defined under clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009); and
(ii) who has not claimed deduction under any of the sections 10A, 10AA, 10B, 10BA or deduction under any provisions of Chapter VIA under the heading “C. – Deductions in respect of certain incomes” in the relevant assessment year;
Eligible Business
(b) “eligible business” means,—
(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 in the previous year does not exceed an amount of two crore rupees.
Brief summary of section 44AD of the Act ,1961
Being eligible assessee doing eligible business
The assessee has his turnover equal to less than 2 crores . More than 2 crores this provision is not applicable .
The assessee has to claim to earn his profit @ 8% or more , then he is not required to submit his balance sheet with the department . He has to justify his gross receipts by maintaining such books of accounts which can justify his turnover . He is not required to upload his balance sheet with the department .
The assessee has to maintain this provision continuous for 5 years . If not followed he can not file his return for subsequent 5 assessment years under section 44AD of the Act .Explained above .
He is not required to maintain books of accounts if he claims profit to be earned minimum @ 8 % or 6% as the case may be . The limit of turnover is upto 2 crores .
The author can be reached at skjain1147@gmail.com
Disclaimer: The author is not responsible for any damages if caused due to mistake or not following the provisions strictly in the proceedings with any authority or court . This is just academic in nature and purpose . Author has tried to brief and explain the confusion for audit of books among some professionals . Thanks with regards .
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