Section 44AD : Presumptive Income under Income Tax Act

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Section 44AD: Presumptive Income under Income Tax Act FY 2018-19 [AY 2019-20]

Section 44AD Presumptive Income under Income Tax Act under this scheme a small businessman with a turnover of 2 crores can opt for section 44ad.

Table of Contents

Features of this scheme – Section 44AD

The turn over must be less than 2 crore
6% (in the case of digital receipts*) or 8% is the minimum net income is considered as the taxable limit.
Maintaining books of accounts are not mandatory.
No audit of the books is required.
Fill ITR 4 under section 44ad.

If your income is less then declared 8% u/s 44AD, you need to maintain proper books and get it audited, on the other hand, if your net income is more then 8%, you must declare the same while filing ITR.

*Digital receipt means- Money received through an account payee cheque or an account payee bank draft or RTGS/NEFT/ECS/Debit or Credit Card/IMPS during the previous year or before the due date specified in sub-section (1) of section 139 in respect of that previous year.

2% additional benefit is granted to the taxpayer to encourage digital payment, it a kind of incentive to the ownest taxpayer which to disclose their business transaction and pay taxes under the scheme. The cash receipt it would be 8%.

Important Note: If the taxpayer opts for section 44AD and declare a net income of 8%, he won’t be allowed to deduct any expenditure or depreciation.

Also, Read: – Fill ITR 4

Eligibility criteria to avail tax benefit under section 44AD

Only a few categories of business or person are allowed to opt for this scheme.

Individual resident Indian
Hindu undivided family (HUF)
Partnership Firm (except LLP or Limited Liability Partnership Firm)

The business of plying, hiring or leasing is not allowed in this section because it is already covered in section 44AE. Agency business and commission business are also not covered.

Section 44AD with Example

Mr. Pankaj running a trading company in electrical goods, his company is registered in SME, previous years he received 70 lakhs in cash and 1.15 crore in digital form. what would be the calculate of PGBP taxable income under section 44AD.

Cash Payment received – 70 Lakhs
Digitally received – 115 Lakhs
Total – 185 Laksh

He can easily opt for a section 44ad because of the total received is less than 2 crore.

So what would be the taxable income?

₹ 70 Lakhs X 8% = ₹ 5,60,000

₹ 115 Lakhs X 6% = ₹ 6,90,000

Therefore, the taxable income comes to be – ₹ 12,50,000

Also Read: – Tax relief under section 89(1)

Skip section 44AD for next year

According to this section once you opt for the scheme then it would be the entry pass for taking benefit under this scheme for the next 5 years.

The taxpayer is free to skip out from the scheme ant time he wants subject to certain norms.

If the taxpayer opts out he will not allow participating in the same scheme for the next subsequent 5 years.

He also has to keep the books of record (accounting) and get it audited.

Let’s understand with Example


Start Filling income tax return u/s 44AD	FY 2019-20
Continue opting	FY 2020-21
Continue opting for another year too	FY 2021-22
Decide to file normal income tax return i.e NOT under section 44AD	FY 2022-23
He is not allowed to fill income tax return u/s 44AD for next 5 year substantially	FY2023-FY2027

FAQ on Section 44AD

Question: After opting for section 44ad, Does the applicant take benefit u/s 80C for the income computed?

Answer: Yes, the applicant can avail all Deductions u/s Chapter VI-A falling u/s 80C to 80GGC and 80 U.

Question: Is Payment of advance tax in respect of income from business covered under section 44AD?

Answer: Yes, The person opted for Presumptive Income under Income Tax Act required to pay the whole taxable amount in advance tax up to 15th of March otherwise he is liable to pay interest u/s 234C.

Question: What if the person engages in small business and opted for Presumptive Income and also having professional income.

Answer: Section 44AD is applied for the income earned from the business and the professional income earned would be considered as normal income tax act, and the same is applicable for the salaried as well as a business person.

Question: If the person carrying more then 1 business, then what would be the tax scenario?

Answer: In this case, the total income required to take into one account and calculated the taxable income u/s 44AD.

Conclusion: Opting for the scheme and declare taxable income by 6% to 8% is a bit higher in some cases, but this scheme get you rid of all such documentation work like bookkeeping, proper audit and many more, It is very difficult and cost wise higher than opting this scheme.

If you have any questions leave your comment below.