SECTION 44AD – PRESUMPTIVE TAX SCHEME FOR BUSINESSES

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Who can opt for presumptive taxation scheme under Section 44AD?

All the small businesses with total turnover/gross receipts of up to Rs. 200 Lakh (except the business of plying, hiring and leasing goods carriages covered under section 44AE).

Resident Individuals, HUF’s and partnership firms (but not LLP) and who has not claim deductions under Section 10AA, 10A, 10B, 10BA or deductions under any provision of Chapter VIA under the heading “C- Deductions in respect of certain incomes” in the relevant assessment year.

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What is the tax rate under this scheme?

In the presumptive taxation scheme tax would be charged on 8% of total turnover/gross receipts.

However, the taxable amount would be “6%” instead of 8% of total turnover or gross turnover receipts, if the amount is received

  • By an account payee cheque or
  • By an account payee bank draft or
  • By use of electronic clearing system
  • Through a bank account or
  • Through such other electronic mode as may be prescribed

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Are there any deductions available under this scheme?

The answer to this is no.

All the deductions under section 30 to 38 shall be deemed to have been allowed in full & no further deduction shall be allowed.

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Treatment of WDV of assets

The WDV of any asset of such shall be deemed to have been calculated as if the assessee has claimed and had been actually allowed deduction in respect of depreciation for it.

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Do we have to prepare books of accounts & audit?

Under this scheme a relief is provided to small businessmen from maintaining the books of accounts & audit. Such assessee opting for the presumptive scheme are not required to maintain books of accounts under section 44AA or get them audited under section 44AB.

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Higher threshold limit for non-audit of accounts for assesses opting for this scheme

Under section 44AB, it is obligatory for every person carrying on business to get their books of accounts audited, if his total sales or turnover or gross receipts exceed Rs. 1 crore.

However, if an eligible person opts for presumptive taxation scheme under section 44AD, he will be not required to get his accounts audited if the total turnover or gross receipts does not exceed Rs. 2 crores.

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Who is not eligible to opt for this scheme?

The following persons are specifically excluded from the applicability of this scheme:

  • A person carrying on profession as referred in section 44AA (1) i.e. legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the board.
  • A person earning income in the nature of commission or brokerage
  • A person carrying on any agency business.

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What if the person decided to not to opt for the presumptive taxation under Section 44AD?

If a person opts for presumptive taxation scheme under section 44AD, the he has to continue to pay tax under this scheme for the next 5 subsequent financial years.

If he decided to opt out of this scheme in any of these subsequent years, he won’t be able to take benefit of the presumptive taxation scheme under section 44AD for the next 5 years.

This person also required to maintain books of accounts under section 44AA, provided his total income exceeds the basic limit and have to get their books audited under section 44AB.

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FAQ

1.X is an insurance agent and has a total turnover of Rs. 75 lakhs in F.Y. 2019-20. Is he eligible to opt for presumptive taxation scheme under section 44AD?

  • A person earning an income in the nature of commission or brokerage cannot adopt the presumptive taxation scheme under Section 44AD. So, an insurance agent cannot adopt the presumptive taxation scheme.

 

2. I have a total turnover of Rs. 1 crore in F.Y. 2019-20 and have opted for presumptive taxation scheme under section 44AD. Can I claim deduction for depreciation on assets?

  • No, in case of a person opting for presumptive taxation scheme cannot claim deduction for depreciation. As under this section it is assumed that the deduction for depreciation has already been allowed and WDV of such asset shall be deemed to have been calculated.

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3. In the F.Y. 2017-18, Mr. Raj filed his ITR under the presumptive taxation scheme for the first time, but in F.Y. 2018-19 he decided to opt out of it. Now, in F.Y. 2019-20, he wants to adopt presumptive taxation scheme again. Is he eligible to do so?

  • No, he cannot opt for the scheme in F.Y. 2019-20. If a person opts for presumptive taxation scheme under section 44AD, the he has to continue to pay tax under this scheme for the next 5 subsequent financial years. If he decided to opt out of this scheme in any of these subsequent years, he won’t be able to take benefit of the presumptive taxation scheme under section 44AD for the next 5 years.

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4. I have a total turnover of Rs. 1.5 crore and opted for presumptive taxation scheme. I forget to pay advance tax on business income on or before 15th March of the F.Y. But I paid the tax on 25th March, so do I have to pay interest on that amount?

  • Yes, if you pay advance tax after 15th March of the F.Y., you have to pay interest on that amount @1% per month from due date till the tax is paid.

 

5. I’m doctor by profession and have a total turnover of Rs. 50 lakhs in F.Y. 2019-20. Can I opt for presumptive taxation scheme under section 44AD?

  • No, a person carrying on profession as referred in section 44AA (1) cannot opt for presumptive taxation scheme.

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6. In the F.Y. 2018-19, I opted for presumptive taxation scheme for the first time. Now, in F.Y. 2019-20 my total turnover are Rs. 1.5 crore and I wanted to opt out of the scheme. Do I have to prepare books of accounts & get them audited?

  • Yes, you have to prepare books of accounts for F.Y. 2019-20 under section 44AA and get them audited under section 44AB as total turnover for the year exceeds the basic limit.

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7. What is the due date for filing income tax return if, a person opts for section 44AD & in the case he didn’t opt for presumptive taxation scheme?

  • In case of a person opts for presumptive taxation scheme under section 44AD, the due date for filing income tax return would be 31st July of A.Y.

In case of a person does not opt for the presumptive taxation scheme under section 44AD, he is required to get his books of accounts audited, and in that case, he can file his return on or before 30th September of A.Y.

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8. I have a total turnover of Rs. 1.6 Crores and I have opted for 44AD. Do I need to get my accounts audited as my total turnover exceeds Rs 1 Crores?

  • No, if you opted for Section 44AD, you are not required to get your accounts audited even if your total turnover exceeds the limit of Rs 1 crores.

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