Section 44AD (Presumptive Taxation (AY 2018-19)
1. Applicability of Section 44AD
Any business which has a turnover of less than Rs. 2 crores can opt for presumptive taxation under this section.
Following class of businesses are out of scope of Section 44AD.
– Life Insurance Agents
– Commission of any kind
– Running the business of Plying, Hiring or leasing Goods carriages
There has been insertion by finance act 2012 in section 44AD to exclude applicability of presumptive provision on following—-
– Person carrying profession as mentioned u/s 44AA(1) –legal, medical, engineering, or architectural or accountancy profession or technical consultancy or interior decoration or any other profession notified by the board.
– Person earning commission in nature of brokerage.
– Person carrying agency business
2. Eligible Assessee for Section 44AD
– Any resident Individual ,
– Resident HUF,
– Resident Partnership firms(excluding LLP)
– and who has not claimed deduction u/s 10AA or
– deduction under any provision of chapter VI-A under heading “C-Deduction in respect of certain incomes”
3. Manner of Computation of taxable business
– Assesee opting for presumptive taxation must declare profits of 8% for non digital transactions and *6% for digital transactions as the case may be.
*provision made effective from year 2017-18 onwards.
– The presumptive income computed as per the prescribed rate is the final income and no further expenses are allowed/ disallowed.
4. Certain Other Points of Consideration
♦ Maintenance of Books of Accounts
– An assessee opting for the above scheme shall be exempted from maintenance of books of account related to such business as required under section 44AA.
♦ Declaration of Higher Income
– The assessee can voluntarily declare a higher income in his return
♦ Advance Tax
– An assessee opting for the above scheme shall be exempted from payment of advance tax related to such business.
♦ In the case of assessee being firm, the normal deduction in respect of salary and interest paid to the partners shall be allowed as deduction out of such presumptive income subject to conditions and limits specified in clause (b) of section 40.
♦ In case assessee claims that he has earned income lower than specified percentage and such income is more than maximum amount not chargeable to tax, Ss. 44AD(5) and 44AA(2)(iv), mandates him to maintain books of accounts and other documents as specified u/s 44AA, get them audited from the accountant and furnish report as required u/s 44AB.
5. New Condition introduced
The new condition has been added by substituting sub section 4 of Sec 44 AD as per which-
If an assesse is opting for presumptive taxation , then it has to be continued at least for 5 years in continuation. In case, the assesse decides to show and file profits as per regular business before the end of these 5 years, then he will lose presumptive benefits and disallowed from presumptive taxation for the subsequent 5 years as well.
(Author Shubhi Goel can be reached at Shubhigoel1989@gmail.com)