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CAPITAL CORP. SYDNEY

73 Ocean Street, New South Wales 2000, SYDNEY

Contact Person: Callum S Ansell
E: callum.aus@capital.com
P: (02) 8252 5319

WILD KEY CAPITAL

22 Guild Street, NW8 2UP,
LONDON

Contact Person: Matilda O Dunn
E: matilda.uk@capital.com
P: 070 8652 7276

LECHMERE CAPITAL

Genslerstraße 9, Berlin Schöneberg 10829, BERLIN

Contact Person: Thorsten S Kohl
E: thorsten.bl@capital.com
P: 030 62 91 92

Presumptive taxation scheme under section 44AD

Industry News

Section 44AD deals with special provisions for computing profits and gains of business on presumptive basis.

What is the meaning of presumptive taxation scheme?

As per sections 44AA of the Income-tax Act, 1961, a person engaged in business 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 and sections 44AE.

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

Presumptive Tax features under 44AD Scheme

As per the provisions under Section 44AD, computed presumptive income (6% or 8% of gross receipts or turnover of the eligible business for the previous year) is considered as the net income for the business covered under the presumptive taxation scheme. Hence, an assessee is not allowed to claim any deductions under Section 30 to 38 of the Income Tax Act.

Note:- Income @ 6% in respect to the amount of total turnover or gross receipts received through banking channel / digital means and a sum equal to 8% for gross receipt/total turnover received in Cash ,or as the case may be, a sum higher than the aforesaid sum shall be deemed to be profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”.

Applicable Rate and Income Computation under Section 44AD

Eligible assessees who are willing to adopt the presumptive taxation scheme under the provisions of Section 44AD has to compute their income on the estimation basis. It is calculated at the rate of 8% or 6% of Gross receipts or total annual turnover of the business for the previous year. Assessee can even declare an income in his ITR higher than the presumptive income shown as per the scheme.

ELIGIBILITY-:

  • Resident Individual taxpayers
  • Hindu Undivided Families
  • Partnership Firm (except LLP or Limited Liability Partnership Firm)
  • The firm or individual’s gross receipt or annual turnover in the previous year should not have exceeded Rs. 2 crores.

This scheme cannot be adopted by a person who has made any claim towards deductions under section 10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant year. 

Businesses not covered under the presumptive taxation scheme of section 44AD

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

> Business of plying, hiring or leasing of goods carriages referred to in section 44AE.

> A person who is carrying on any agency business.

> A person who is earning income in the nature of commission or brokerage

Apart from above discussed businesses, a person carrying on profession as referred to in section 44AA(1)is not eligible for presumptive taxation scheme

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

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

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