What is section 44ad and Provisions of Section 44AD
SECTION 44AD OF INCOME TAX ACT, 1961
Section 44AD in Income tax act is the presumptive income section under which prescribed percentage of turnover will be deemed as your income. Till AY 2016-17, prescribed percentage was 8%. But from AY 2017-18,to encourage business to receive payments digitally , the Finance Bill 2017 propose to amend section 44AD of the Act to reduce the existing rate of deemed total income of eight per cent to six per cent in respect of the amount of such total turnover or gross receipts received by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date specified in sub-section (1) of section 139 in respect of that previous year.
Provisions of Section 44AD
In the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession".
"Eight per cent", will be substituted with "six per cent", in respect of the amount of total turnover or gross receipts which is received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date specified in sub-section (1) of section 139 in respect of that previous year.
Thus all the assessees whose turnover is less than Rs. 2 crore can opt for presumptive income scheme and their income will be as follows:
Amount received electronically - 6% of such receipts
Amount received in Cash - 8% of such receipts
Amt received after due date U/s 139(1) - 8% of such receipts
Effect of other deductions
Any deduction allowable under the provisions of sections 30 to 38 shall be deemed to have been already given full effect to and no further deduction under those sections shall be allowed.
Pre Conditions : Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year in which the profit has not been declared in accordance with the provisions.
(5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee to whom the provisions of sub-section (4) are applicable and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.]
Non Applicability of Section
The benefit of this section shall not apply to—
(i) a person carrying on profession as referred to in sub-section (1) of section 44AA;
(ii) a person earning income in the nature of commission or brokerage; or
(iii) a person carrying on any agency business.
(i) an individual, Hindu undivided family or a partnership firm, who is a resident, but not a limited liability partnership firm and
(ii) who has not claimed deduction under any of the sections 10A, 10AA, 10B, 10BA or deduction under any provisions of Chapter VIA under the heading "C. - Deductions in respect of certain incomes" in the relevant assessment year;
(i) any business except the business of plying, hiring or leasing goods carriages referred to in section 44AE; and
(ii) whose total turnover or gross receipts in the previous year does not exceed Rs. Two Crore.
CONCLUSION : This section gives a massive relief to small tax payers and small business mans as it has very less compliance requirements. If a tax payer declaring income under this section, he is not required to maintain the books of accounts as required under section 44AA and also not required to get the accounts audited U/s 44AB. It is suggested to use this section to file the returns. If you are claiming this section for computing business income, then you are required to file return in Form ITR 4 ( Sugam ).