Discontinuation of 44AD
This query is : Resolved
27 July 2025
Dear Sir / Madam,
My question is as follows:
Mr. A is a GST-registered dealer providing gaming services. He reported his income u/s 44 AD for AY 2023-24 & AY 2024-25.
In AY 2025-26, he suffered a loss of Rs. 450000/- and doesn't want to continue u/s 44AD. His other income includes Interest income of Rs 12563/- and no other income.
1) Can he opt out of section 44AD and report his P&L Balance sheet and claim a loss of Rs. 450000/-?
2) Will he be liable to tax audit if he opts out of presumptive taxation?
Please guide
Regards,
Suraj
My question is as follows:
Mr. A is a GST-registered dealer providing gaming services. He reported his income u/s 44 AD for AY 2023-24 & AY 2024-25.
In AY 2025-26, he suffered a loss of Rs. 450000/- and doesn't want to continue u/s 44AD. His other income includes Interest income of Rs 12563/- and no other income.
1) Can he opt out of section 44AD and report his P&L Balance sheet and claim a loss of Rs. 450000/-?
2) Will he be liable to tax audit if he opts out of presumptive taxation?
Please guide
Regards,
Suraj
27 July 2025
If a taxpayer opts out of the presumptive taxation scheme under Section 44AD before completing the mandatory 5-year period, the key consequences are:
The taxpayer will be barred from rejoining the Section 44AD scheme for the next 5 assessment years following the year of opting out.
During this 5-year lockout period, the taxpayer must file under the regular tax regime (such as ITR-3), and is required to maintain books of accounts for the business.
If the taxpayer's income exceeds the basic exemption limit during these years, they may also be liable for a tax audit as per Section 44AB.
For current AY he is not required to file audit report as income doesn't exceed basic exemption limit; but the same rule apply for next five years.
The taxpayer will be barred from rejoining the Section 44AD scheme for the next 5 assessment years following the year of opting out.
During this 5-year lockout period, the taxpayer must file under the regular tax regime (such as ITR-3), and is required to maintain books of accounts for the business.
If the taxpayer's income exceeds the basic exemption limit during these years, they may also be liable for a tax audit as per Section 44AB.
For current AY he is not required to file audit report as income doesn't exceed basic exemption limit; but the same rule apply for next five years.
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30 July 2025
Thank you sir,
one more query - if he completes 5 year period of presumption taxation scheme, can he switch to normal scheme from 6th year or 11th year? will he be liable to tax audit if his income exceeds basic exemption limit in 6th or 11th year?
one more query - if he completes 5 year period of presumption taxation scheme, can he switch to normal scheme from 6th year or 11th year? will he be liable to tax audit if his income exceeds basic exemption limit in 6th or 11th year?
30 July 2025
1. He can switch to normal taxation in any year after 6 years of continuous adoption of sec. 44AD.
2. No tax audit mandatory after this due to discontinuation of presumptive assessment,
2. No tax audit mandatory after this due to discontinuation of presumptive assessment,
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31 July 2025
You are welcome.
25 September 2025
Good luck...
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