Section 44AD - Presumptive Taxation for Business

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Sakshi Shah

Business and Profession Income
Presumptive Taxation Scheme
Section 44AD

To provide relief to small taxpayers from the tedious task of maintaining books of accounts and getting books of accounts audited, the CBDT had introduced the Presumptive Taxation Scheme. Section 44AD is the presumptive taxation scheme for business. A business with turnover up to INR 2 Crore can take the benefit of presumptive taxation under Section 44AD.

ITR for Business u/s 44AD (Presumptive Scheme)
CA Assisted ITR Plan for Individuals / HUFs with business income covered under Presumptive Taxation Scheme
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ITR for Business u/s 44AD (Presumptive Scheme)
CA Assisted ITR Plan for Individuals / HUFs with business income covered under Presumptive Taxation Scheme
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Who can opt for Presumptive Income under Section 44AD?

The following taxpayers engaged in any business can opt for the Presumptive Taxation Scheme under Section 44AD.

The following taxpayers cannot opt for the Presumptive Taxation Scheme under Section 44AD.

Calculation of Presumptive Income under Section 44AD

To opt for Presumptive Taxation Scheme under Section 44AD, the following two conditions should be satisfied:

  1. The gross sales or turnover of the business should be less than or equal to INR 2 Crore.
  2. The taxpayer should report 6%/8% or more of the gross sales or turnover as income in the ITR.

Note: The prescribed rate of 8% is for non-digital transactions in the business and the rate of 6% is for digital transactions in the business.

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Example

Akshay runs a trading business. The gross sales for FY 2019-20 are INR 1.8 Crore. Sales include cash payments of INR 80 lacs and non-cash payments of INR 1 Crore. Total Purchases are of INR 50 lacs. The total expenses are INR 20 lacs that includes a salary, rent, electricity, maintenance, travelling, etc. Can he opt for the Presumptive Taxation Scheme under Section 44AD?

Since the gross sales are less than INR 2 Crore, Akshay can opt for Presumptive Taxation Scheme under Section 44AD.

Income Tax on Presumptive Income under Section 44AD

Tax Audit and Books of Accounts for Presumptive Income under Section 44AD

Check Tax Audit Applicability u/s 44AB
Check Income Tax Audit applicability u/s 44AB to file Tax Audit Report Form 3CB - 3CD with your Income Tax Return.
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Check Tax Audit Applicability u/s 44AB
Check Income Tax Audit applicability u/s 44AB to file Tax Audit Report Form 3CB - 3CD with your Income Tax Return.
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Section 44AD of Income Tax – 5 Year Rule

As per this rule, if a taxpayer opts for the presumptive taxation scheme in a financial year, he/she should opt for it for the next 5 financial years continuously. However, if the taxpayer fails to do so, he/she would not be able to take the benefit of presumptive taxation scheme for the next 5 financial years. For eg: A professional opts for Sec 44AD for AY 2018-19 and AY 2019-20. However, for AY 2020-21, he does not opt for the presumptive taxation scheme. In this case, he will not be eligible to claim the benefit of the presumptive taxation scheme for the next five AYs, i.e. from AY 2021-22 to AY 2025-26.

FAQs

Do I need to pay advance tax if I opt for the Presumptive Taxation Scheme under Section 44AD?

Yes. If the total tax liability for a financial year exceeds INR 10,000, you must pay advance tax. If you have opted for presumptive taxation scheme u/s 44AD or 44ADA, you are required to pay advance tax on or before 15th March instead of 4 installments in other cases. However, if you fail to pay advance tax by 15th March of the financial year, interest is Sec 234B and Sec 234C is required to be paid.

Do I need to maintain books of accounts if I opt for the Presumptive Taxation Scheme under Section 44AD?

A person engaged in a business having gross sales or turnover up to INR 2 Cr has the option to opt for the Presumptive Taxation Scheme under Sec 44AD. He/she can report 6%/8% or more of gross receipts as income and pay tax on it. If they opt for Presumptive Taxation, they are not required to maintain books of accounts as per Section 44AA. They are also not liable for Tax Audit as per Section 44AB.

  • Chetan Chhabra says:

    Could you please clarify if a person opts for 44AD for one financial year and in the year 2 and year 3 there is no business income.

    1. Is it mandatory to file return u/s 44AD for year 2 and year 3 when business income is zero

    2. In case that person has business income in year 4, Can he still opt for 44AD or he will not be able to take benefits of 44AD for year 4 and another next 4 years (Total 5 years) as there was no business income in year 2 and 3 and he is considered as deemed opt out year 2 and year 3.

    • Anushka Shah says:

      Hey Chetan,
      1. It is not mandatory to file ITR u/s 44AD if you have no business income in the financial year.
      2. In year 4, taxpayer can still opt for Section 44AD but if he opts out of it, he cannot claim the benefit for next 5 years.

  • Satbir Saini says:

    Is there any limit for Claim for rate 6%. Like turnover will be up to this Percentage or any transaction in Ditigital will be liable for 6%. Please Clarify it.

    • Anushka Shah says:

      Hey Satbir,
      A business can opt for Presumptive Taxation Scheme under Section 44AD if your turnover is less than or equal to INR 2 Cr. For digital transactions, tax rate is 6% and for non-digital transactions, the tax rate is 8%.
      A profession can opt for Presumptive Taxation Scheme under Section 44ADA if the gross receipts are less than or equal to INR 50 lacs. The tax rate is 50%.
      Read more about Section 44ADA – Presumptive Taxation for Profession

  • sunil says:

    Can 44AD be applied for speculative business(Intraday gains)?

    • Quicko Support says:

      Hey Sunil,
      Yes. Section 44AD can be opted for any business income including speculative income (equity intraday trading).

  • Pradeep p says:

    I have loss of rs rs 150000 in equity delivery and intra day..turnover 45 lakhs…can i show 6% of profit under the scheam 44AD…
    i dont want to carry forward loss…i simply want to show all my trades under this scheam without audit…not event i want to show any CG…

    • Anushka Shah says:

      Hi Pradeep,
      You can opt for Presumptive Taxation under Section 44AD for equity intraday trading. You should report 6% or more of turnover as presumptive income and pay tax on it at slab rates. You will not be able to carry forward the intraday loss. Income from equity delivery trading should be reported as capital gains/ losses and you can carry forward the loss.

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