December 14, 2018

Section 44AD of Income Tax Act, 1961 (Business Profit on Presumptive Rates)

This presumptive scheme  is given to small taxpayer assessee engaged in an eligible business

Eligible Assessee :

  • Resident Individual,
  • Resident Hindu Undivided Family(HUF) or
  • Resident Partnership Firm(not being LLP)

Eligible Business: Any business not being

  • Carrying on profession u/s 44AA(1)
  • Earning income in the nature of commission or brokerage
  • Person carrying on agency business
  • Engaged in business of plying, hiring or leasing goods carriage
  • This scheme cannot be adopted by a person who has made any claim towards deductions under section 10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant year.
  • if the total turnover or gross receipt of the business exceeds Rs. 2Crores

Eligible Turnover:

Total Turnover/ Gross Receipts in the previous year of the eligible business should not exceed Rs.2Crores

(Turnover from AY 2013-14 to AY 2016-17 is Rs.1 Crores, Before that it was Rs.60 lakhs.)

 

Amount of income under the head PGBP:

If the above conditions are satisfied, then the income from eligible business is 8% of the gross receipt or total turnover

From AY 2017-18: if the amount is received from non- cash means(i.e. to promote digital means)by way of Cheque, Demand Draft, Debit Cards, Credit Cards, NEFT, RTGS or any other cashless mode, then the income from eligible business is 6% of the gross receipt or total turnover

 

If he is applying for presumptive scheme then

  • he is not allowed to claim deduction under section 30 to 38 are deemed to have been already allowed
  • separate deduction on account of depreciation is not available. However, the written down value of any asset used in such business shall be calculated as if depreciation as per section 32 is claimed and has been actually allowed.
  • he is not required to maintain books of accounts related to such business U/S 44AA
  • in case of firm, deduction in respect of salary and interest to partners shall not be allowed from AY 2017-18(before Ay 2017-18, it was allowed as deduction)
  • an assessee also required to pay whole amount of advance tax on or before 15thMarch of the previous year. If he fails to pay the advance tax by 15th March of previous year, he shall be liable to pay interest as per section 234C. Note: Any amount paid by way of advance tax on or before 31st day of March shall also be treated as advance tax paid during the financial year ending on that day.

If a person does not opt for the presumptive taxation scheme 

A person can declare income at lower rate (i.e., at less than 8%), however, if he does so, and his income exceeds the maximum amount which is not chargeable to tax, then he is required to maintain the books of account as per the provisions of section 44AA and has to get his accounts audited as per section 44AB.

 

Consequences if a person opts out from the presumptive taxation scheme of section 44AD

Any person opts for presumptive taxation scheme then he is also require to follow the same scheme for next 5 years and  he failed to do so, then presumptive taxation scheme will not be available for him for next 5 years. [For example, an assessee claims to be taxed on presumptive basis under Section 44AD for AY 2017-18. For AY 2018-19 and 2019-20 and he offers income on basis of presumptive taxation scheme. However, for AY 2020-21, he did not opt for presumptive taxation Scheme. In this case, he will not be eligible to claim benefit of presumptive taxation scheme for next five AYs, i.e. from AY 2021-22 to 2025-26.]

If the assessee total income exceeds maximum amount not chargeable to tax

  • he is required to keep and maintain books of account and
  • he is also liable for tax audit as per section 44AB from the AY

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