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Section 44AD (Presumptive Taxation) – Whom to Opt

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Section 44AD (Presumptive Taxation) – Whom to Opt

Section 44AD of Income Tax Act Deals with Presumptive Taxation, it means Assessee do not have to calculate income and maintain books of accounts in traditional way but a percentage of gross income will be offered for tax purpose. Generally 8 percent (6 percent in case where the transactions are done via banking channel) of gross income is treated as taxable income or the higher percentage which assessee has shown as income. Assessee can opt for this section, if Turnover/ Gross Receipts in the financial year does not exceed Rs. 2 crore.

Who is eligible to opt for this Taxation Regime?

Section 44AD can be opt only by eligible assessee. Eligible Assessee for this purpose is Individual, Hindu United Family (HUF) or a partnership firm (who is a resident). Provided that, the partnership firm is not a limited liability partnership firm.

Provided further that, Assessee who has claimed deduction under section 10AA or any deduction under heading “C” of the Chapter VI-A (Section 80-IA to 80RRB of income tax are covered under heading ‘C’ of chapter VI-A)


Expenses allowance, after opting Section 44AD.

Any expense deduction allowable under section 30 to 38 of the income tax act shall be deemed to have been already given effect to and no further deductions under these sections will be allowed to the assessee option presumptive taxation under section 44AD. However, Brought Forward loss can be adjusted with the income under this section, as that is no covered under section 30 to 38 but covered by Chapter VI.


Opting out of Presumptive Taxation.

Where an eligible assessee opts for presumptive taxation under this section, and declares profit for any previous year as per this section and after that assessee declares profit for any five assessment years relevant to the previous year succeeding such previous year are not in line with the provisions of section 44AD subsection (1), then such assessee will not be eligible to claim the benefits of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared as per the provisions of this section (Section 44AD (1)).


Advance tax Provision Applicability on Assessee opting Section 44AD

The assessee who opts for the presumption taxation under section 44AD, is required to pay the advance tax. However Assessee do not required to pay the advance tax in installments which otherwise would have been paid had the option for this section has not exercised. Assessee has to pay whole of advance tax relevant to the previous year in one go, on or before 15th March of the Financial year.


Maintenance of Books of Accounts and Tax-Audit Requirement

Assessee opting for presumptive taxation under this section does not required to Maintain books of Accounts as per section 44AA and does not need to get the accounts audited under Section 44AB of the income tax Act. However, where assessee opts out of section 44AD in any Assessment year and Income exceeds the maximum amount not chargeable to tax, then in that Case Both section 44AA and 44AB applicable on the assessee and he has to maintain books of accounts and get them audited.


The above provision is Applicable for the Assessee who is operating a business. For Assessee operating a profession then Presumptive taxation be applicable as per section 44ADA, and not as per 44AD.


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