Can a Proprietorship firm doing Software Development business opt 44AD

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This discussion examines whether a proprietorship firm engaged in software development, with a turnover under 2 Cr and over 20 employees, can utilise Section 44AD. It clarifies that software development for specific customer requirements, with TDS deducted under Section 194J, typically falls under professional income. Consequently, Section 44AD is unlikely to apply, and Section 44ADA is also out of reach due to exceeding the 50 lakh threshold. The firm will likely need to file under regular assessment using ITR 3, with tax audit limits for professional income being Rs. 50 lakhs.

Sanket

Sanket (Querist)
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22 November 2021 Can a Proprietorship firm doing Software Development business with 20+ employees file returns under section 44AD?
Turnover is less than 2 Cr.
Will it be considered a profession under 44ADA? or can it be considered 44AD as a business?
If 44AD, and if books of accounts are NOT maintained, then how will one answer in case of any query from department?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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22 November 2021 Whether the software is developed as per customer's requirement?

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Sanket

Sanket (Querist)
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22 November 2021 Yes sir, it is developed as asked by Customer

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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22 November 2021 It means the customers must be deducting TDS u/s. 194Jb?

Sanket

Sanket (Querist)
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22 November 2021 Yes sir, TDS is deducted under 194Jb

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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22 November 2021 So no question of Sec. 44AD; and as per turnover you have crossed 50 lakhs, so sec. 44ADA is also out question.
File ITR 3 under regular assessment.

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Sanket

Sanket (Querist)
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30 December 2021 Noted sir, But for this same case, what would be the limit for Tax audit? Propritorship, Software Development, All transactions are digital.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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30 December 2021 For professional income the tax audit limit is Rs. 50 lakhs.

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