Section 44AD of the Income Tax Act is an important section that deals with taxation for businesses with a turnover of less than 2 crore. Click on the article to know further details as to how this section can help your business.
Eligible Assessee for the purpose of Section 44Ad of Income Tax Act
b) Hindu Undivided Family (HUF)
c) Partnership Firm ( and not LLP)
And eligible assessee should be resident only.
Eligible business for the purpose of Section 44AD of Income Tax Act
a) any business other than the business of plying, hiring or leasing goods carriages; and
b) whose total turnover or gross receipts in the previous year does not exceed an amount of two crore rupees.
Income computation for Section 44AD of the Income Tax Act
Profit and gains shall be considered as 8% of the total turnover or gross receipts and income tax shall be levied on this profit. Profit and gains shall be considered as 6% in case of the total turnover or gross receipts through digital transactions.
Amendments to Section 44AD of Income Tax Act
a) In the budget 2016, turnover for business was increased from 1 crore to 2 crores.
b) You will need to pay a 100% advance tax by 15th march of the financial year.
c) You cannot claim a deduction from section 30-38 of the income tax act.
Conditions for Section 44AD of Income Tax Act
a) If you are opting for this scheme you will need to continue it for 5 years
b) If you do not or drop out of this scheme as you may want to show profits and pay tax accordingly, you cannot opt for this scheme for the subsequent 5 years.
Features of Section 44AD of Income Tax Act
a) You need not maintain any books or records for your business
b) Complexity is low as there is a fixed percentage on gross receipts or the turnover of your business.
c) You will need to file ITR-4 which is much simpler to file.
Example of Section 44AD of Income Tax Act
Mr. XYZ has a shop for Spa and Salon. His annual turnover for the previous financial year was Rs. 95 lakh via Cash. Since this is less than 2 crores, He is eligible to opt for presumptive taxation under section 44AD.
His presumptive income would be 8% of 95, 00,000= Rs. 7,60,000
And Income tax shall be levied on Rs. 7,60,000 at applicable rates.
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