sec 44AD
This query is : Resolved
19 July 2011
sec 44AD
19 July 2011
what is ur query
23 July 2025
### **Section 44AD: Presumptive Taxation Scheme for Small Businesses**
**Section 44AD** of the **Income Tax Act, 1961** is a **presumptive taxation scheme** designed for small businesses and professionals. It allows eligible taxpayers to declare their income at a **prescribed percentage of their total turnover** or **gross receipts** without maintaining detailed books of accounts.
Here’s a breakdown of **Section 44AD**:
---
### **Key Features of Section 44AD:**
1. **Eligibility Criteria**:
* **Applicability**: It applies to a **resident individual**, **Hindu Undivided Family (HUF)**, or **a proprietorship firm**.
* **Business Type**: The scheme is applicable for **businesses** (not professions) engaged in **any business**, except:
* Businesses earning income through **commission or brokerage** (e.g., insurance agents, real estate agents, etc.).
* Professionals (doctors, lawyers, accountants, etc.) who are governed under **Section 44AA**.
2. **Turnover Limit**:
* The **gross receipts/turnover** of the business must not exceed **Rs. 2 crore** in a financial year.
* For businesses with turnover **less than Rs. 2 crore**, taxpayers can opt for this scheme, **even if their income is lower than the presumed income**.
3. **Presumed Income**:
* The income is presumed to be **8% of the total turnover** or **gross receipts** of the business.
* For **digital payments** (via banking channels, digital wallets, etc.), the presumed income is **6%** of the turnover, provided 95% or more of the receipts are received through **digital modes**.
* **Presumed income of 8%** applies to the turnover excluding **GST** and other taxes collected on behalf of the government.
4. **No Need for Detailed Books of Accounts**:
* Under this scheme, you don’t need to maintain detailed books of accounts or get your accounts audited (except when the turnover exceeds **Rs. 2 crore**).
5. **No Deductions for Expenses**:
* The taxpayer **cannot claim deductions** for **business expenses** such as rent, salaries, etc., because the income is already presumed at 8% of turnover.
* However, the taxpayer is allowed to claim deductions under **Section 80C** and other applicable sections (like **80D** for insurance premiums).
---
### **Important Points to Remember**:
* **Tax Audit**:
* If the turnover exceeds **Rs. 2 crore**, the business must get its accounts audited under **Section 44AB**.
* If you opt for **Section 44AD**, you are **not required to get your accounts audited**, even if you have a turnover of Rs. 1 crore.
* **Option to Declare Higher Income**:
* A taxpayer can declare income **higher than the prescribed 8%**, and in such a case, they need to maintain books of accounts and may have to undergo an audit.
* **Deduction for Capital Gains**:
* If the business under Section 44AD has capital gains or losses from the sale of assets, those can be separately shown and will be taxed accordingly.
* **Choice to Opt Out**:
* Once you opt for **Section 44AD**, it remains applicable for **five consecutive years**.
* After five years, the taxpayer has the **option** to opt-out and go back to the normal taxation scheme.
---
### **Example:**
Let’s say you run a **trading business** with a turnover of **Rs. 40 lakh**. Under Section 44AD, you will declare **8% of Rs. 40 lakh** (which is **Rs. 3.2 lakh**) as your income.
* **Turnover**: Rs. 40,00,000
* **Presumed Income (8%)**: Rs. 3,20,000 (this is the taxable income)
* You do not need to maintain books of accounts (unless you have exceeded Rs. 2 crore turnover in the year).
* You can claim deductions under other sections like **80C** (for investments in LIC, PPF, etc.).
---
### **Exclusions** from Section 44AD:
* **Commission or brokerage businesses**.
* **Professionals** (e.g., doctors, lawyers, accountants, etc.).
* **Businesses with turnover exceeding Rs. 2 crore**.
* **Businesses involving goods traded in bulk** (wholesalers) or providing services.
---
### **How to File**:
* **Form ITR-4** should be filed by eligible taxpayers opting for **Section 44AD**.
* In the **Income Tax Return (ITR)**, the presumptive income should be declared under the **presumptive taxation scheme**, and details of digital receipts (if applicable) should be mentioned for the reduced rate of 6%.
---
### **In Conclusion**:
Section 44AD provides a simplified tax scheme for small businesses with turnover up to Rs. 2 crore. It offers a **presumed income tax benefit** without the need for maintaining books of accounts or undergoing audits, making it easier for small businesses to comply with tax laws.
If you need any more clarification or specific examples related to your business scenario, feel free to ask!
**Section 44AD** of the **Income Tax Act, 1961** is a **presumptive taxation scheme** designed for small businesses and professionals. It allows eligible taxpayers to declare their income at a **prescribed percentage of their total turnover** or **gross receipts** without maintaining detailed books of accounts.
Here’s a breakdown of **Section 44AD**:
---
### **Key Features of Section 44AD:**
1. **Eligibility Criteria**:
* **Applicability**: It applies to a **resident individual**, **Hindu Undivided Family (HUF)**, or **a proprietorship firm**.
* **Business Type**: The scheme is applicable for **businesses** (not professions) engaged in **any business**, except:
* Businesses earning income through **commission or brokerage** (e.g., insurance agents, real estate agents, etc.).
* Professionals (doctors, lawyers, accountants, etc.) who are governed under **Section 44AA**.
2. **Turnover Limit**:
* The **gross receipts/turnover** of the business must not exceed **Rs. 2 crore** in a financial year.
* For businesses with turnover **less than Rs. 2 crore**, taxpayers can opt for this scheme, **even if their income is lower than the presumed income**.
3. **Presumed Income**:
* The income is presumed to be **8% of the total turnover** or **gross receipts** of the business.
* For **digital payments** (via banking channels, digital wallets, etc.), the presumed income is **6%** of the turnover, provided 95% or more of the receipts are received through **digital modes**.
* **Presumed income of 8%** applies to the turnover excluding **GST** and other taxes collected on behalf of the government.
4. **No Need for Detailed Books of Accounts**:
* Under this scheme, you don’t need to maintain detailed books of accounts or get your accounts audited (except when the turnover exceeds **Rs. 2 crore**).
5. **No Deductions for Expenses**:
* The taxpayer **cannot claim deductions** for **business expenses** such as rent, salaries, etc., because the income is already presumed at 8% of turnover.
* However, the taxpayer is allowed to claim deductions under **Section 80C** and other applicable sections (like **80D** for insurance premiums).
---
### **Important Points to Remember**:
* **Tax Audit**:
* If the turnover exceeds **Rs. 2 crore**, the business must get its accounts audited under **Section 44AB**.
* If you opt for **Section 44AD**, you are **not required to get your accounts audited**, even if you have a turnover of Rs. 1 crore.
* **Option to Declare Higher Income**:
* A taxpayer can declare income **higher than the prescribed 8%**, and in such a case, they need to maintain books of accounts and may have to undergo an audit.
* **Deduction for Capital Gains**:
* If the business under Section 44AD has capital gains or losses from the sale of assets, those can be separately shown and will be taxed accordingly.
* **Choice to Opt Out**:
* Once you opt for **Section 44AD**, it remains applicable for **five consecutive years**.
* After five years, the taxpayer has the **option** to opt-out and go back to the normal taxation scheme.
---
### **Example:**
Let’s say you run a **trading business** with a turnover of **Rs. 40 lakh**. Under Section 44AD, you will declare **8% of Rs. 40 lakh** (which is **Rs. 3.2 lakh**) as your income.
* **Turnover**: Rs. 40,00,000
* **Presumed Income (8%)**: Rs. 3,20,000 (this is the taxable income)
* You do not need to maintain books of accounts (unless you have exceeded Rs. 2 crore turnover in the year).
* You can claim deductions under other sections like **80C** (for investments in LIC, PPF, etc.).
---
### **Exclusions** from Section 44AD:
* **Commission or brokerage businesses**.
* **Professionals** (e.g., doctors, lawyers, accountants, etc.).
* **Businesses with turnover exceeding Rs. 2 crore**.
* **Businesses involving goods traded in bulk** (wholesalers) or providing services.
---
### **How to File**:
* **Form ITR-4** should be filed by eligible taxpayers opting for **Section 44AD**.
* In the **Income Tax Return (ITR)**, the presumptive income should be declared under the **presumptive taxation scheme**, and details of digital receipts (if applicable) should be mentioned for the reduced rate of 6%.
---
### **In Conclusion**:
Section 44AD provides a simplified tax scheme for small businesses with turnover up to Rs. 2 crore. It offers a **presumed income tax benefit** without the need for maintaining books of accounts or undergoing audits, making it easier for small businesses to comply with tax laws.
If you need any more clarification or specific examples related to your business scenario, feel free to ask!
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- Regarding Appointment of auditor in case of casual vacancy
- RCM on GTA Services
- GST- DRC 03 RCM Liability
- Conversion of Proprietorship Firm to Partnership Firm
- Query on managerial remuneration u/s 197 of CA 2013
- REVENUE RECOGNITION AS PER IND AS 115
- Validity of form 15 G and 15 H on Interest on fixed deposit
- GST 9- Table 8
- Supply to unit situated in SEZ
- For sale of shares of a private limited company, what is process cost and time for demat of shares
- EXCESS CREDIT REALTED GST REVERSAL
- Export invoice not reported
- CA Articleship Extension Matter
- GST OFFICER WRONG NOTICE
- "Please ensure that the Total of the Deductions u/s 54F match the same in Table D in Sch CG"
- Composition Dealer GST Annual Return Filing process
- Revision under Section 264 in The Income Tax Act, 1961
- TDS under section 195.
- Filing GST Returns after death of proprietor
- Registered Required in GST Act
Trending Online Classes
CAclubindia
