Presumptive Taxation Scheme of section 44AD || F & Q on Presumptive Taxation Scheme of section 44AD

Presumptive Taxation Scheme of section 44AD

Section 44AD:- Meaning of presumptive taxation scheme- ​​​As per sections 44AA of the Income tax Act, 1961, a person engaged in business or profession is required to maintain regular books of account under certain circumstances. To give relief to small taxpayers from this tedious work, the Income-tax Act has framed the presumptive taxation scheme under sections 44AD, sections 44ADA, sections 44AE., Section 44BB and Section 44BBB​

A person/taxpyer adopting the presumptive taxation scheme can declare income in Income tax Return at a prescribed rate and, in turn, is relieved from tedious job of maintenance of books of account.

​​For small taxpayers, the Income tax Act, 1961 has framed Section 44AD presumptive taxation schemes as given below:

• Section 44AD :  Computation of income on estimated basis in the case of taxpayers [being a resident individual, resident Hindu undivided family or resident partnership firm (not being a limited liability firm] engaged in certain business subject to certain conditions.

Eligible to take advantage of the scheme of presumptive taxation scheme of section 44AD

​​​​​​​The presumptive taxation scheme of section 44AD of income tax act can be adopted by following persons:

1) Resident Individual

2) Resident Hindu Undivided Family (HUF)

3) Resident Partnership Firm not LLP (Limited Liability Partnership Firm)

In other words, the scheme cannot be adopted by a non-resident and by any person other than an individual, a Hindu Undivided Family (HUF) or a partnership firm (not Limited Liability Partnership Firm).

Further, this Scheme presumptive taxation scheme of section 44AD cannot be adopted by a person/taxpayer who has made any claim towards deductions under section 10A/10AA/10B/10BA or under sections 80HH to​80RRB in the relevant year. ​

Businesses are not eligible for presumptive taxation scheme fo section 44AD

​​​​​​​The scheme of   section 44AD of income tax act is designed to give relief to small taxpayers engaged in any business, except the following businesses:

Business of services related to hiring, plying or leasing goods carriages, transportation referred to in sections 44AE.

• A person who is carrying on any agency business (plying, hiring or leasing goods carriages, transportation etc).
• A person who is earning income in from commission or brokerage
• Any business whose total turnover or gross receipts exceeds 2 (two) crore rupees. ​

A part from above discussed businesses, a person (taxpayer) carrying on profession as referred to in section 44AA (1) of income tax act ​is not eligible for presumptive taxation scheme under section 44AD of income tax act. ​

F & Q Section 44AD Presumptive Taxation Scheme

 Can an insurance agent adopt the section 44AD presumptive taxation scheme?

​​​​​​A person who is earning income from the head commission or brokerage cannot adopt the section 44AD  presumptive taxation scheme ​. Insurance agents receive income by way of commission and brokerage, hence, they cannot adopt the presumptive taxation scheme of section 44AD​.

If a person adopts the presumptive taxation scheme of section 44AD of income tax act, then is he required to maintain books of account as per section 44AA of income tax act ?

​​​​​​Section 4​4AA of income tax act deals with provisions relating to maintenance of books of account by a person engaged in business and profession. Thus, a income tax assesses engaged in business and profession has to maintain books of account of his business and profession according to the provisions of section 44AA of income tax act.

In case of a person engaged in a business and opting for the presumptive taxation scheme of section 44AD of income tax, the provisions of section 44AA relating to maintenance of books of account will not apply. In other words, if a person adopts the provisions of section 44AD and declares income @ 8% in cash receipt / 6% In case of bank receipt of the turnover, then person is not required to maintain the books of account as provided under section 44AA in respect of business covered under the presumptive taxation scheme of section 44AD​.​

If a person adopts the scheme section 44AD of income tax act, then is he liable to pay advance tax in respect of income from business covered under section 44AD?

​​​​​Any person opting for the n scheme under section 44AD of income tax act is liable to pay whole amount of advance tax on or before 15th March of the previous year. If he fails to pay the advance tax by 15th march of previous year, he shall be liable to pay interest as per section 234B and s​ection 234C of income tax act.

Note: Any amount paid by way of advance tax on or before 31st day of March shall also be treated as advance tax paid during the F.Y ending on that day.

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