Section 44AD – Presumptive Taxation
ITR Form Applicable – ITR 4
Special provision for computing profits and gains of business on presumptive basis.
Section : 44AD. (1) and 6
Notwithstanding anything to the contrary contained in sections 28 to 43C
Section : 44AD. (1) and 6
Provisions : Notwithstanding anything to the contrary contained in sections 28 to 43C
44AD is a self-contained code (which determines the Profit Computation without referring to Section 29) by its own means devoid of Section 28 to 43C as both Chargeability and Computation are embedded in it
It means Section 28 to 43C is not applicable on adopting 44AD, hence no disallowance / No Deemed Income under Section 40(a), 40A, 40A(3), 40A(3A), 41 can be made
However 43B uses the word “Notwithstanding anything contained in any other Provisions of this Act” has far wide amplitude and disallowance under section 43B can be made by assessing officer
Section 40 uses the word “Notwithstanding anything to the contrary in the Section 30 to 38” and Section 44Ad uses “Notwithstanding anything to the contrary contained in sections 28 to 43C” , hence Section 44AD has far wide amplitude and disallowance under section 40 can not be made by assessing officer
Section : 44AD. (1) and 6
Provisions : in the case of an eligible assessee (Resident Individual, HUF, Firm)
Eligible Assessee includes: –
- Resident Individual
- Resident HUF
- Resident Partnership Firm
Who has not claimed any deduction under sections 10A, 10AA, 10B, 10BA or deduction under any provisions of Chapter VIA under the heading “C.—Deductions in respect of certain incomes”
Non – Eligible Assessee includes: –
- LLP
- Company
- Non Resident Individual
- Non Resident HUF
- Non Resident Partnership Firms
- A Local Authority
- AOP/ BOI
- Cooperative Society
- Artificial Judicial Person
Section 44AD applies to “ Assessee” hence if he is carrying several business, turnover of all business needs to be clubbed
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Section : 44AD. (1) and 6
Provisions :
Engaged in an eligible business (Any Business Except 44AE)
(6) The provisions of this section, notwithstanding anything contained in the foregoing provisions, shall not apply to—
(i) a person carrying on profession as referred to in sub-section (1) of section 44AA;
(ii) a person earning income in the nature of commission or brokerage; or
(iii) a person carrying on any agency business.
As per Explanation to Sub Section 6 to Section 44AD, “eligible business” means,—
(i) any business except the business of plying, hiring or leasing goods carriages referred to in section 44AE; and
(ii) whose total turnover or gross receipts in the previous year does not exceed an amount of 3 crore rupees.
Section 44AE is not eligible business but it doesn’t make the assesse ineligible to take benefit of Section 44AD, Business covered under 44AE is not mentioned in 44Ad(6) so both section can be claimed separately for respective business
As Assessee carrying on following business is not allowed to adopt 44AD(1)-
- Carrying on profession as referred to in Section 44AA(1) (Only Specified Profession)
- earning income in the nature of commission or brokerage
- carrying on any agency business.
So person who is carrying any of above business or profession can not avail section 44AD(1)
As Per Section 194H “commission or brokerage” includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for
- Services rendered (not being professional services) or
- for any services in the course of buying or selling of goods or
- in relation to any transaction relating to any asset, valuable article or thing, not being securities;
Interplay between 44AD and 44ADA
- A person Carrying on specified Profession as per Section 44AA(1) cannot adopt for 44AD for his other business eligible for 44AD but can adopt 44ADA for his specified Profession
- A person Carrying on non-specified Profession can adopt for 44AD for his other business eligible for 44AD but not 44ADA for his profession
If assesse opt for presumptive scheme than its turnover will be excluded while maintaining books of account or audit provisions
Section : 44AD. (1) and 6
Provisions :
Following 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”
- a sum equal to 8% 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
8 or 6% is minimum deemed profit, if an assesee declare that and to claim the Profit upto presumptive is right of the assesse
An option has been given to claim more than 8 or 6% profit, Option is given to assesse not the AO to presume higher Income
If there is no claim made by assesse for higher Income, there is no higher income. The AO cannot make any addition on this count as there is no provision under the Act permitting to make such addition
Also if 8 or 6% profit have been declared, then balance 92 or 94% receipt have been expended. This amount is neither saved nor invested. AO Can make addition if he is having sufficient evidence that difference between actual profit and presumptive profit have been invested, However AO cannot question the expenditure upto 92 or 94%
Also if books of accounts are maintained and assesse knows actual profit and if actual profit is more then presumptive profit, assesse should declare actual profit in ITR
In other word assesse cannot invest the difference between actual profit and presumptive profit in any assets
If assesse claims Income More than 8% then also AO doesn’t have power to assess more then returned income
Section : Provision to 44AD(1)
Provided that this sub-section shall have effect as if for the words “eight per cent”, the words “six per cent” had been substituted, in respect of the amount of total turnover or gross receipts which is received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed during the previous year or before the due date specified in sub-section (1) of section 139 in respect of that previous year.
Presumptive Rate of Income would be 8%, however as per Proviso 1 to 44AD(1) the presumptive Rate will be 6% in respect of amount of total turnover or gross receipts which is received by digital banking mode during the previous year or before the due date specified u/s 139(1) in respect of that previous year
So any payment received after due date specified u/s 139(1) in respect of that previous year will not be eligible for 6%
Section : Provision to 44AD (2)
Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed
Also if 8 or 6% profit have been declared, its presumed that all deduction regarding business expenses have been claimed and no further deduction would be allowed
Section : Provision to 44AD (3)
The written down value of any asset of an eligible business shall be deemed to have been calculated as if the eligible assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.
WDV will be calculated as if depreciation u/s 32 has been deemed to be allowed
Section : Provision to 44AD (4)
Consequence of Opting Out of Section 44AD(1)
44AD (4) Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1).
If the Following 2 conditions are satisfied assesse will not be eligible to claim benefit u/s 44AD(1) for 5 Assessment Years
- The Assessee should have declared profit u/s 44AD(1) and
- The Assessee have not declared as per 44AD(1) in any of subsequent 5 years
If an assesse have never opted for 44AD(1) then section 44AD(4) is not applicable
Section : Provision to 44AD(5)
Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee to whom the provisions of sub-section (4) are applicable and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.
Audit is required only when –
- Section 44AD(4) is applicable i.e.
- The Assessee have declared profit u/s 44AD(1) and
- The Assessee have not declared as per 44AD(1) in any of subsequent 5 years
and
- whose total income exceeds the maximum amount which is not chargeable to income-tax without considering rebate u/s 87A
Audit is applicable only if you have earlier adopted 44AD, then discontinued and your income exceeds the maximum amount which is not chargeable to income-tax in any previous year
Maintenance of accounts by certain persons carrying on profession or business
44AA. (1) read with Rule 6F – Every person carrying on
- legal,
- medical,
- engineering or
- architectural profession or
- the profession of accountancy or
- technical consultancy or
- interior decoration or
- authorised representative – a person who represents any other person, on payment of any fee or remuneration before any Tribunal or authority constituted or appointed by or under any law for the time being in force, but does not include an employee of the person so represented or a person carrying on legal profession or a person carrying on the profession of accountancy;
- film artist – Any person engaged in his professional capacity in the production of a cinematograph film whether produced by him or by any other person, as—
- an actor;
- a cameraman;
- a director, including an assistant director;
- a music director, including an assistant music director;
- an art director, including an assistant art director;
- a dance director, including an assistant dance director;
- an editor;
- a singer;
- a lyricist;
- a story writer;
- a screen-play writer;
- a dialogue writer; and
- a dress designer.
- any other profession as is notified by the Board in the Official Gazette
Shall keep and maintain
- a cash book;
- a journal, if the accounts are maintained according to the mercantile system of accounting;
- a ledger;
- carbon copies of bills, whether machine numbered or otherwise serially numbered, wherever such bills are issued by the person, and carbon copies or counterfoils of machine numbered or otherwise serially numbered receipts issued by him:
Provided that nothing in this clause shall apply in relation to sums not exceeding twenty-five rupees;
- original bills wherever issued to the person and receipts in respect of expenditure incurred by the person or, where such bills and receipts are not issued and the expenditure incurred does not exceed fifty rupees, payment vouchers prepared and signed by the person:
- A person carrying on medical profession shall, in addition to the above books of account and other documents keep and maintain the following, namely :—
- a daily case register in Form No. 3C;
- an inventory under broad heads, as on the first and the last day of the previous year, of the stock of drugs, medicines and other consumable accessories used for the purpose of his profession.
- a daily case register in Form No. 3C;
44AA(2) Every person carrying on business or profession not being a profession referred to in 44AA(1) as above shall,—
· | In any one of the three years immediately preceding the previous year | Individual or HUF | Others |
| if his income from business or profession exceeds | 250000 | 120000 |
| turnover or gross receipts in business or profession exceed | 2500000 | 1000000 |
- where the business or profession is newly set up in any previous year, if his income from business or profession is likely to exceed as above limit during such previous year; or
- Where assesse covered under section 44AE or section 44BB or section 44BBBand the assessee has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, during such previous year; or
- Where the provisions of section 44AD (4) are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year,
The books of account and other documents shall be kept and maintained for a period of 6 years from the end of the relevant assessment year
