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query on section 44AD(1)
can someone explain the section 44ad(1) of income tax act
Replies (4)
Section 44AD(1) provides that :
"Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”."
Analysis
On perusing the provisions of section 44AD one thing is crystal clear that the moment an eligible assessee is engaged in eligible business, Section 44AD is automatically applicable to such business, unless the case is covered by section 44AD(5). So only under a situation where the actual income is less than 8% of Gross Receipts or Turnover, the assessee can escape applicability of section 44AD of the Act, by maintaining Books of Accounts as per section 44AA clause (iv) and getting the same audited as per section 44AB clause (d).
In all other cases, the assessee is governed by the provisions of section 44AD only, whether the assessee declares income at the 8% or higher income or lower income in cases covered by 44AD(5) where the Total Income does not exceed the maximum amount not chargeable to tax.
"Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”."
Analysis
On perusing the provisions of section 44AD one thing is crystal clear that the moment an eligible assessee is engaged in eligible business, Section 44AD is automatically applicable to such business, unless the case is covered by section 44AD(5). So only under a situation where the actual income is less than 8% of Gross Receipts or Turnover, the assessee can escape applicability of section 44AD of the Act, by maintaining Books of Accounts as per section 44AA clause (iv) and getting the same audited as per section 44AB clause (d).
In all other cases, the assessee is governed by the provisions of section 44AD only, whether the assessee declares income at the 8% or higher income or lower income in cases covered by 44AD(5) where the Total Income does not exceed the maximum amount not chargeable to tax.
thanks a lot
your welcome 🤗
I am a Textile trader and the turnover of my partnership firm is well below 50Lakhs. My CA has been filing my income tax under section 44AD for the past 3 years, but while doing so he also draws up a P&L Account & Balance Sheet and says it is included while filing the IT returns. He constructs a calculated profit of ~16-30% in the P/L Account and my Income Tax has been ~2Lakh - 3Lakh after deducting Partners Remuneration.
He says he can also file returns claiming 8% profit, but I would likely get a notice in such a scenario.
Is his way of filing returns the recommended way to file returns ?
I trust him, my family does too. We have been advised to get a second opinion by an acquaintance. Please advise.
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