With effect from assessment year 2011-12, certain assessees engaged in a business are allowed to compute their business income on presumptive or estimated basis and thus, exempted from maintaining books of account as required u/s 44AA. In case assessee fulfills certain conditions as given below, then it is presumed that assessee's business income is estimated at only 6% of his total turnover or gross receipts which is received by an account payee cheque or a account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed. In case assessee wants to declare higher income, he can do so.
In case the assessee is not receiving payments through account payee cheques or drafts or through the use of electronic clearing system then the existing rate of deemed profit of 8% of turnover or gross receipts shall continue to apply.
Computation of business income on estimated basis u/s 44AD shall be allowed in case assessee fulfills following conditions
(1) This provision is applicable only if assessee is a resident individual, resident H.U.F. or a resident partnership firm (but not a Limited Liability Partnership).
(2) Assessee has not, claimed any deduction u/s 10A, 10AA, 10B, 10BA, and 80RRB.
(3) Assessee may be engaged in any business except the business of playing, hiring or leasing of trucks where section 44AE applies.
(4) Assessee's total turnover or gross receipts in the relevant previous year does not exceed 2 crore.
Other points to be noted
(1) In case assessee so wishes, he can declare a higher income in his income-tax return.
(2) If assessee opts for computation of income on estimated basis, then it is also presumed that all provisions regarding calculation of business income have been taken care of. Thus, for the purpose of computing written down value of the block at the end of the previous year depreciation shall be deducted from the value of block. But, in case of a partnership firm, salary or any other renumeration to working partners and interest on capital to partners (as applicable u/s 40(b)) shall not be allowed out of estimated business income of 6% or 8% as the case may be, [It may be noted that these payments were allowed to be deducted upto assessment year 2016-17]
(3) In case assessee wants to declare lower income than 6% or 8% as the case may be, then he must maintain proper books of account as required u/s 44AA and the assessee has to get his books of account audited u/s 44AB if his total income exceeds the exempted limit. The assessee has to submit his return of income electronically with digital signature.
(4) The income computed on per section 44AD shall only be the business income of the assessee. The other incomes of the assessee shall be added to such presumptive income for calculating total income of the assessee.
(5) Assessee can claim deductions under section 80.
(6) The provisions of Sec. 44AD shall not apply to following persons :
- A person carrying on profession as referred to in Section 44AA(1),
- A person earning income in the nature of commission or brokage; or
- A person carrying on any agency business.
Lock-in period for availing the scheme and for re-opting the scheme
Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and then he declares profit in any of the five consecutive assessment years relevant to the previous year succeeding such previous year which is not in accordance with the provisions of sub-section (1) of this Section, 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).
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