Section 44AD of Income Tax act provides special provisions for computing business profits on presumptive business. Prior to assessment year 2011-12, section 44AD was applicable only to the business of civil construction. However, now this section is applicable to all the businesses except specifically mentioned below.
The provisions of Section 44AD are applicable only if the following conditions are satisfied -
a) Eligible Assessee
Following assesses are eligible for availing benefits of presumptive taxation under Section 44AD -
- Individual (resident in India)
- HUF (resident in India)
- A partnership firm (not a LLP)
Following persons are not eligible for availing benefits of Section 44AD -
- A person carrying on business referred to in section 44AA(1).
- A person earning income in the nature of commission or brokerage.
- A person carrying on any agency business.
b) The assesse has not alaimed any deduction under sections 10A, 10AA, 10B, 10BA, 80HH to 80RRB in the relevant assessment year.
c) The assesse should not be engaged in the business of plying, hiring or leasing goods carriage referred to in Section 44AE.
d) The total turnover/gross receipts of the assesse during the relevant previous year should not be more than Rs.1 Crore.
2. Presumptive Taxation
If all the above conditions are satisfied, the income from the eligible business is presumed @8% of turnover or gross receipts.
3. Consequences of declaring a Lower Income
If the assesse declares a lower income than the deemed profits and gains under section 44AD, following consequences shall apply -
- Taxpayer will have to maintain books of accounts under section 44AA.
- Taxpayer will have to get his accounts audited under section 44AB.
Both the consequences shall apply irrespective of the turnover or gross receipts of the assesse provided his income exceeds the exemption limit.
4. Important Points
a) The assesse can voluntarily declare a higher income in his return.
b) An assesse opting for this scheme is exempted from payment of advance tax related to such business.
c) An assesse opting for this scheme is exempted from maintenance of books and accounts under section 44AA.
d) All the deductions under sections 30 to 38 including depreciation and unabsorbed depreciation are deemed to have been provided and no further deduction is allowed under these sections. WDV is calculated in the books as if depreciation is allowable under the act.
e) In case of a partnership firm, deduction of salary and interest to partners under section 40(b) is allowed.