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Presumptive Taxation Scheme under Section 44AD

4 march 2

A presumptive taxation scheme covered under section 44AD of the Income-tax Act allows you to calculate your tax on an estimated income or profit. Any business with a revenue of less than Rs. 2 crores can select to be taxed presumptively. They must declare earnings of 8% for non-digital transactions or 6% for digital transactions, whichever one is applicable. According to the Income-tax Act, an individual involved in any business or profession is needed to maintain regular books of account, and the individual has to get his accounts audited. To give small taxpayers relaxation from this ongoing work, the Income-tax Act has enclosed the presumptive taxation scheme under sections 44AD, 44ADA, and 44AE.

A person following the presumptive taxation scheme can declare income at a recommended rate. In return, it is alleviated from the endless job of maintaining books of account and obtaining the statements audited.

The following persons can acquire the presumptive taxation scheme under section 44AD:

  • Resident individual
  • Resident Hindu undivided family
  • Resident partnership firm

In other words, the scheme cannot be acquired by a non-resident and by any person other than an individual, a HUF, or a partnership firm (not a limited liability partnership firm). This scheme cannot be acquired by a person who has declared deductions under section 10A/10AA/10B/10BA or under sections 80HH to 80RRB in the suitable year. 

Businesses not included under presumptive taxation scheme
The scheme of section 44AD is formed to give relaxation to small taxpayers engaged in any business, except the following companies:

  • The business of wielding, hiring, or leasing goods carriages is specified in section 44AE.
  • Individual carrying an agency business.
  • Individual who is earning income like commission or brokerage

Apart from the above-discussed businesses, a person carrying on profession as referred to in section 44AA (1) is not eligible for a presumptive taxation scheme.

  • The person working as an Insurance Agent can’t select the Presumptive Taxation Scheme as they earn income on a commission basis.
  • Any person involved in any profession mentioned in Section 4AA (1) cannot take up the presumptive taxation scheme of section 44AD.
  • A person whose total turnover surpass Rs. 2,00,00,000 for the year cannot select the presumptive taxation scheme of section 44AD.

Characteristics of the scheme

  • The person’s net income shall be treated as 8% of his turnover (net income will be considered 6% in case of digital receipts).
  • The person doesn’t have to keep up accounting records.
  • The person won’t have to pay advance tax.
  • The person doesn’t have to get their accounting records audited.
  • The person can register their tax return in ITR-4, a much shorter and simpler form than ITR-3.
  • If an assessee has preferred for presumptive taxation under section 44AD, then he/she is needed to choose for the same scheme for a continued time of 5 years. If, in any case, he/she failed to do so, then he/she will not be permitted to select for the scheme for the next 5 years.

Payment of advance tax under Section 44AD
An assessee is accountable to pay his or her advance tax in a single deferred payment on or before the 15th of March every fiscal year if he or she chooses presumptive taxation under Section 44AD. For any non-payment in paying the advance tax, the assessee will be imposed interest under Section 234C. 

Taxable profits and gains
According to section 44AD, an assessee who chose for presumptive taxation will calculate his income as 8% of the total turnover or gross receipts of the last year. An amount higher than the earlier estimated amount as presumptive income asserted by an assessee shall be entitled as gains and profits of the business that is imputable to tax under the head “Profits and gains of business or profession”. An assessee can assert lower profits or gains if he has continued proper books of account, gets his accounts audited, and furnishes the audit report mentioning lower yields.

The presumptive taxation scheme under Section 44AD benefits small or medium-sized taxpayers; the reason is that they do not have to do the endless job of maintaining books of account and getting it audited for taxation under the Income-tax act 1961. This helps in consuming time as well as protects the assessee from a high probability of errors.

At AJSH, we assist our clients in dealing with various income tax compliances, including income tax assessments, TDS returns, tax advisory and other related services by providing them adequate support and guidance from our end. If you have any questions or wish to know more about the Presumptive taxation scheme, kindly contact us.


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