Section 44AD of Income Tax Act – Presumptive Taxation

  • The scheme shall be applicable to individuals, HUF’s and partnership firms excluding Limited Liability Partnership Firms. The scheme of presumptive taxation is applicable for any business, which has maximum gross sales or turnover or gross receipts of Rs. 2 crore.
  • The presumptive rate of net income is prescribed at 8% of gross turnover/gross receipts (6% in case of digital receipts).
  • An assessee who opts for presumptive taxation scheme, shall be exempted from maintenance of books of accounts related to such business as required u/s 44AA of the Income Tax Act.
  • An assessee may have gross sales/ turnover less than Rs. 2 crore, but show a net income below the presumptive rate of 8% or 6% (where applicable). In such a case, the assessee will need to maintain books of accounts (if such an assessee falls in any tax bracket and also get them audited.
  • The assessee cannot deduct any business expenses against the income under presumptive taxation scheme.
  • Section 44AD shall not apply to-

I. A person carrying on profession;
II. A person having income from commission or brokerage; or
III. A person carrying on agency business

  • Once the presumptive taxation scheme u/s 44AD has been opted by the assessee, he is required to file Income tax return under the presumptive taxation scheme only for a period of 5 years.
  • In case a taxpayer has filed the return as a normal taxpayer under presumptive taxation scheme or opted out of presumptive taxation scheme, then he cannot re-opt for the presumptive taxation scheme for the next 5 years.
  • ITR 4 would be applicable under this.

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