Section 44AD: Computation of Income on presumptive Basis

Ritik Chopra | Last updated: 28 August 2021

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Quick Summary

Section 44AD allows eligible businesses to compute their income on a presumptive basis, simplifying tax compliance by exempting them from maintaining detailed books of account. If payments are received via account payee cheque, draft, or electronic means, income is presumed at 6% of turnover; otherwise, it's 8%. Certain conditions must be met, including turnover not exceeding £2 crore and the business not falling under specific exclusions like truck hiring.

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, the

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FAQ :

Section 44AD allows certain assessees engaged in business to compute their income on a presumptive or estimated basis, exempting them from maintaining books of account.

If payments are received by account payee cheque, draft, or electronic clearing system, the presumptive profit is 6% of total turnover or gross receipts. If not, the rate is 8%.

Eligibility applies to resident individuals, HUFs, and partnership firms (excluding LLPs) whose total turnover or gross receipts do not exceed £2 crore and who meet other specified conditions.

Yes, an assessee can choose to declare a higher income in their income-tax return if they wish.

If you wish to declare a lower income, you must maintain proper books of account as required under Section 44AA and get them audited under Section 44AB if your total income exceeds the exempted limit.

Yes, this provision does not apply to professions as defined in Section 44AA(1), income from commission or brokerage, or agency businesses. It also excludes businesses covered by Section 44AE (hiring of trucks).