In case of a you engaged in a business and opt for the presumptive taxation scheme of section 44AD, the provisions of section 44AA relating to maintenance of books of account will not apply. However, there might be a situation, if there is loss in your business and the want file regular return
In General, every business irrespective of the type of assessee would have to maintain their books of accounts under section 44AA to ensure compliance and also those business should get their books of accounts audited if their turnover is beyond Rs 1 cr. The profit and loss is generally calculated based on the revenue earned minus expenses incurred and depreciation on assets.
However, contrary to that, eligible businesses are allowed to compute income on an estimated basis under section 44AD of the income-tax Act, at a minimum prescribed rate.
Top 3 reasons for Small business end up not maintaining books of Accounts
- Small Businesses are generally one man show or very small team with focus on day to day earning
- Cost of maintain books of accounts and audit can vary between different businesses but still for small business the high cost
- Managing books of accounts is requires basic level of expertise in accounting which small business lack
Income tax department allows Individuals, HUF, Partnerships firm but not LLP’s to assume that 8% would be the income on the total turnover & pay tax on such income generated by such assesse. This type of taxation is known as presumptive taxation because it is a presumed that a percentage on the total turnover of the company would had been the income in the absence of books of accounts been maintained by the company.
Such assessee can be into any business other than the business of plying, hiring or leasing of goods carriages as they have already been covered under section 44AE. However, if the assessee is carrying more than 1 such business, the total turnover of such businesses shouldn’t increase more than 1 cr.
However, such provision is only applicable if the total turnover of such assesse as stated above does not exceed Rs 2 cr (Earlier it was 1 cr, increased in Budget 2016-17). In other case, the assessee has to maintain his books of accounts under section 44AA & get his books of accounts audited under Section 44AB. By following presumptive taxation, assessee cannot claim any interest or deduction of expenses, but however he can any interest paid to partners or remuneration as per governing section i.e. section 40(b). Also he claims deductions under Chapter VIA of the income tax i.e. From Section 80C to Section 80U.
Increasing the turnover limit from Rs 1 cr to 2 cr has really been a boost to small scale business to ensure they can file their returns with the same 8% rather than undergoing the process of maintaining the books of accounts.