IT System Auditor
33683 Points
Joined April 2010
Applicability of 44AD
#1. Presumptive taxation scheme under section 44AD is applicable to all small taxpayer engaged in any business but not in the business of plying, hiring or leasing of goods carriages.
#2. This scheme is not applicable to any person carrying out agency business as well as any person earning income from commission and brokerage business.
#3. Only following persons can opt for this scheme: a) Resident Individual b) Resident Hindu Undivided Family and c) Resident Partnership Firm (not LLP).
#4. This section does not apply to a person providing professional services (covered in section 44ADA)
#5. A person whose total turnover or gross receipts exceeds ₹ 2 Crore cannot adopt presumptive taxation scheme under section 44AD. If turnover exceeds ₹ 2 Crore, then income will be computed under normal provisions of the act (i.e. Revenue – Expenses) and accounts will have to be audited under section 44AB.
#6. If a taxpayer has claimed deductions under section 10A/10AA/10B/10BA or under sections 80HH to 80RRB during the year, then he cannot adopt this scheme.
The manner of Computation of income under section 44AD
Under this presumptive scheme, income will be presumed to be 8% of the total turnover or gross receipts of the business during the year. Income Tax will be paid on this income. (All the expenses, which are incurred for the business, shall be deemed to have been already claimed).
Further, in order to promote the acceptance of digital transactions, an amendment has been made by the Finance Act, 2017 w.e.f. 01-04-2017. It provides that, in respect of turnover / gross receipts that are received through digital mode i.e. cheque, bank draft, NEFT, RTGS, IMPS, Debit/Credit Cards, income will be computed at the rate of 6% of the total turnover or gross receipts of the business during the year.
Therefore, for all payments received electronically, profits will be presumed to be 6% of such payments and for all other payments, 8% of such payments.