New Presumptive taxation u/s 44AD from AY 2011-12
A new section 44AD has been incorporated in the Income-tax Act to provide for special provisions for computing business profit on presumptive basis from the assessment year 2011-12. This section has been inserted to replace existing section 44AD and 44AF and this new section will be applicable to any business (whether it is retail trade or civil construction or any other business) except the business of plying, hiring or leasing goods carriages referred u/s 44AE.
The provisions of section 44AD will be applicable only if the following conditions are satisfied:
The assessee should be an eligible assessee. Eligible assessee for this purpose is a person resident in India who is an Individual, a Hindu Undivided Family or a partnership firm (not being a limited liability firm). The assessee has not claimed any deduction under sections 10A, 10AA, 10B, 10BA, 80HH to 80RRB in the relevant assessment year.
The assessee should be engaged in any business except the business of plying, hiring or leasing goods carriages referred u/s 44AE.
Total turnover or gross receipt in the previous year of the eligible business should not exceed an amount of rupees sixty lakhs.
Consequences if the above conditions are satisfied
If the above conditions are satisfied, the income from the eligible business is estimated at 8% of the gross receipt or total turnover.
Following points should be noted –
- The assessee can voluntarily declare a higher income in his return.
- All deductions under sections 30 to 38, including depreciation and unabsorbed depreciation, shall be assumed to have already been given full effect. No further deduction shall be allowed under these sections.
- However, in the case of assessee being firm, the normal deduction in respect of salary and interest paid to the partners shall be allowed as deduction out of such presumptive income subject to conditions and limits specified in clause (b) of section 40.
- The written down value of is calculated, where necessary, as if depreciation as applicable has been allowed. Moreover, it will be assumed that disallowance, if any, under sections 40, 40A and 43B has been considered while calculating the estimated income @ 8 %.
- An assessee opting for the above scheme shall be exempted from payment of advance tax related to such business.
- An assessee opting for the above scheme shall be exempted from maintenance of books of account related to such business as required under section 44AA.
When income is taxable at the rate of 8% as stated above, the concerned assessee is not under any obligation to explain individual entry of cash deposit in his bank, unless such entry has no nexus with the gross receipt.
Lower Income and consequences
A taxpayer can declare his income to be lower than the deemed profits and gains as stated above. The following consequences are applicable if the taxpayer declares his income which is lower than the deemed profits and gains as stated above –
- The taxpayer will have to maintain the books of account and other documents as required under section 44AA (irrespective of income or turnover) if his total income exceeds the exemption limit.
- The taxpayer will have to get his books of accounts audited and furnish a report of such audit under section 44AB (irrespective of income or turnover) if his total income exceeds the exemption limit.