Presumptive taxation under income tax act 44AD , 44ADA


Sec 44AD:- Income Of Any Business Presumed To Be 8 %
  • Applicability:-
    Eligible Assessee means Resident:- Individual/HUF/Partnership Firm
    1. Eligible Business:- All types of business except business covered u/s 44AE/Agency/Commission/Brokerage.
    2. Turnover does not exceed Rs 1 Crore in Previous Year( 2 CRORES FROM FY 16-17).If all above conditions are satisfied then assessee can declare estimated income from business:- 8% of total turnover or more.
  • Non Applicability:-
    1. Non Resident:-Individual/HUF/Partnership firm.
    2. Company/LLP/BOI /AOP.
    3. Turnover exceeds Rs 1 Crore in Previous Year.
    4. Professional
    5. Assessee has not claimed deductions u/s 10A/10AA/10B/10BA/80HH/80RRB in relevant previous year.
  • If Assessee opts for Sec 44AD and declares his income as 8 % of total turnover or more he should consider following points:-
    1. Not allowed to claim any expenses or depreciation i.e. expenses covered u/s 30 to 38.
    2. Remuneration or Interest paid to partner u/s 40(b) shall be allowed as deduction.
    3. Maintenance of books of accounts u/s 44AA and Audit u/s 44AB not required.
    4. Advance Tax rule does not apply.
    5. If there is disallowance of any expenses it will be assumed that it has been already made in calculation of estimated profit.
  • Applicability of Sec 44AA & 44AB:-
    1. Claim lower profit than limit specified u/s 44AD
    2. Total Income exceeds basic exemption limit.
    If assessee claim lower profit but his total income is lower than exemption limit then Sec 44AA & 44AB does not apply.

Example:

1.Assessee has two Business
Retail+Wholesale
80 Lakh+30 Lakh
Sec 44AA : Applicable ( Retail and Wholesale both )
Sec 44AB : Applicable ( since total turnover exceeds 1 Cr.)
Sec 44AD : No relevance

2.Assessee has Business & Profession
a)Business+Profession
80 Lakh+30 Lakh
Sec 44AA : Applicable ( Business and Profession both )
Sec 44AB : Applicable on Profession (Assessee may opt for Sec 44AD for Business
turnover and 44AB may not be applicable)
Sec 44AD : Assessee may opt for Sec 44AD for Business ( Profession not covered u/s 44AD)

b)Business+Profession
70 Lakh+15 Lakh
Sec 44AA : Applicable ( Business and Profession both )
Sec 44AB : Not applicable (Turnover is less than Rs 1 crore in business and less than Rs.25 turnover and 44AB may not be applicable)
Sec 44AD : Assessee may opt for Sec 44AD for Business ( Profession not covered u/s 44AD)

3.Assessee has three Business
a)Retail+44AE+44AD
80 Lakh+30 Lakh+35 Lakh
Sec 44AA : Applicable only on retail business.
Sec 44AB : Applicable on Retail ( Rs. 80 Lakhs) since 44AD is not applicable on retail.
Sec 44AD : Applicable on 35 Lakhs
Note: In 3(a), it has been assumed that the assessee has profitability below 8% on turnover of Rs. 80 Lacs.