Presumptive Taxation

A. Section 44AD: Special provision for computing profits and gains of business

 i) Applicable to –

1. Resident Individual, HUF and Firm (Excluding LLP) carrying on any business, and

2. whose total turnover or gross receipts in the previous year does not exceed an amount of Rs. 2 crores.

 ii) Not applicable to –

1. Assessee’s claiming deduction under section 10AA and section 80-IA to 80RRB

2. Assessee engaged in business of plying, hiring or leasing goods carriage referred to in section 44AE.

3. A person carrying on profession as referred to in section 44AA.

4. A person earning income in the nature of commission or brokerage.

5. A person carrying on any agency business.

 iii) Rate of presumptive income –

1. 8% of total turnover or gross receipts.

2. Income can be computed at the rate of 6% instead of 8% only if turnover/gross receipt is received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date of filing return under section 139(1).

 iv) Opting in or opting out –

1. If a person declares income for a previous year as per section 44D, he is bound to declare the income of next 5 previous years as per section 44AD.

2. If he does not declare income as per section 44AD in the next 5 previous years, he is not eligible to claim benefits of section 44AD in the 5 years next following the previous year in which he did not declare income as per section 44AD. He shall be liable to get the tax audit done and maintain books of accounts for the above previous years in which he is not governed by section 44AD.

3. For example:- An assessee who has been declaring income as per section 44AD for AY 2018-19 and if he declares income less than 8% for AY 2019-20, for AY 2020-21 to 2024-25, he is

• Required to get tax audit done u/s 44AB.
• Required to maintain books of account.

 v) Miscellaneous Provisions –

1. All deductions are deemed to have been allowed u/s 30 to 38.

2. An assessee who opts for section 44AD is required to pay the whole amount of advance tax liability on or before 15th March.

3. Current year and brought forward losses can be set off against the presumptive income deemed u/s 44AD.

4. An assessee who opts for section 44AD can still claim deduction under chapter VIA.

5. An assessee who opts for section 44AD is not required to maintain the books of account.

---

 B. Section 44ADA: special provision for computing profits and gains of professional

---

 i) Applicable to –

1. All resident assessee, and

2. Assessee should be engaged in a profession whose gross receipts do not exceed Rs. 50 lakhs.

 ii) Rate of presumptive income –

1. 50% of gross receipts will be deemed as income under the head P/G/B/P

 iii) Miscellaneous Provisions –

1. All deductions shall be deemed to have been allowed.

2. An assessee who opts for section 44ADA is required to pay the whole amount of advance tax liability on or before 15th March.

3. Assessee is not required to get tax audit done.

4. An assessee who opts for section 44ADA is not required to maintain the books of account.

5. Books of accounts required to be maintained and tax audit required if income shown is below 50% and income exceeds the taxable limit.