Section 44AD: All About Presumptive Scheme for Businesses

There are a lot of tax compliances which are to be done by every business. The businesses which are having high turnover have to do all these compliances but the small business can opt for the presumptive schemes.

In this article, we will discuss about one of the presumptive scheme i.e. Sales for businesses with turnover of less than Rs.2 crore p.a.

This scheme is provided by the government to reduce the burden of compliances for the small business. The main advantage of presumptive scheme is that the business does not need to maintain the books of accounts. Under these schemes profit is assumed is to be the certain percentage of the turnover.

This scheme is very useful for the small businesses. Under Section 44AD profit is assumed to be 8% of the turnover where the turnover is less than Rs.2 crore. If the turnover is more than Rs.2 crore than the business has to calculate the profit with normal provisions of the act.

Applicability

This provision applies to:

  • Every Business
  • Resident Individual
  • Resident Partnership
  • Resident HUF

Section 44AD does not apply to:

  • Businesses having business of plying, hiring and leasing of goods. These businesses are covered by section 44AE.
  • Agency business
  • Business having income from commission
  • Limited Liability Partnership (LLP)

Moreover, after demonetization, government is trying to encourage the businesses for going digitally i.e. if a business does its all the transactions digitally profits are assumed to be the 6% of the turnover which is received digitally. But the turnover which is received in cash, the profits are assumed to be 8%.

The business has to pay tax on the profit as calculated under section 44AD. But in case the business thinks the actual profits are less than the presumptive profit, business can opt for that profit i.e. Profit= Income less Expense. But in this case the business is required to maintain all of the book of accounts and also has to get the books audited under section 44AB.

Important Points to be noted:

  • The incentive of 6% to be deemed to be profit is only given to businesses not to professionals.
  • This scheme can only be opted by the businesses having turnover less than Rs.2 crore.
  • The businesses opting for presumptive income are not allowed any expense (of section 30 to 38) or depreciation to be claimed from the profit as these are to be deemed to be provided.
  • In case the business pays salary/ interest to the partners, these would not be allowed to be claimed by the business as deduction from the profit.
  • The business is required to comply with the Advance tax provisions but the business is required to pay 100% if the tax by 15th This is also done to reduce the burden of compliances.
  • If the taxpayer has more than 1 business, then the aggregate turnover of all the business should be considered.
  • The taxpayer can avail the deduction under section 80C- 80U from the presumptive income.
  • If taxpayer has a business as well as a profession, section 44AD can be applied to business and the professional income can be calculated as per the normal provisions of the act.
  • The person opting for presumptive income under section 44AD has to file ITR-4S – Sugam.
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  1. Useful article.However, it is not clear whether a partner of LLP having income income from profession like technical fee or legal fee would get benefit of this newly added section.

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