Provisions of Section 44AD - Part 1

CA.R.S.KALRA | Last updated: 09 December 2020

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Section 44AD of the Income Tax Act offers a presumptive taxation scheme for eligible small businesses with a turnover up to ₹2 crore. It allows businesses to declare profits at a fixed rate of 8% of their total turnover or gross receipts. However, this rate is reduced to 6% for payments received via account payee cheque, bank draft, or electronic clearing systems, encouraging digital transactions. Certain businesses like those earning commission, brokerage, or agency income are excluded from this scheme.

4AD. (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 ca

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FAQ :

Section 44AD provides a presumptive taxation scheme for eligible businesses with a turnover or gross receipts up to ₹2 crore. It allows them to declare their profits at a fixed percentage of their turnover, simplifying tax compliance.

The presumptive income is generally calculated at 8% of the total turnover or gross receipts. However, for amounts received through account payee cheque, bank draft, or electronic clearing systems, the rate is reduced to 6%.

Eligible businesses include manufacturing, trading, wholesale, retail, job work, and service businesses, provided their total turnover or gross receipts do not exceed ₹2 crore. Certain professions and specific types of businesses like commission, brokerage, or agency businesses are not eligible.

An eligible assessee is typically a resident individual, Hindu Undivided Family, or partnership firm (not an LLP) who has not claimed specific deductions under sections like 10A, 10AA, 10B, 10BA, or Chapter VI-A in the relevant assessment year.

Payments received through account payee cheques, bank drafts, or electronic clearing systems (including other prescribed electronic modes) are eligible for a lower presumptive income rate of 6% of the turnover, compared to the standard 8% for cash receipts.

Yes, an eligible assessee can declare a profit higher than the sum calculated at the presumptive rate (8% or 6%) if they believe they have earned more.