- 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 various Sections such as: Section 44AD, 44ADA, 44AF, 44BB and 44BBB.
- A person adopting the presumptive taxation scheme can declare income at a prescribed rate and, in turn, is relieved from tedious job of maintenance of books of account.
- In this presentation I will discuss only about Section 44AD & 44ADA, which are as under:
SECTION 44AD
Introduction:-
- an Eligible Assessee engaged in the Eligible Business who declares the profit of 8% of total Turnover or Gross Receipts or such higher amount as the case may be for the eligible business, 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”.
- In this case the assessee not eligible to take benefit of sections 28to 43C.
- If the assessee received the amount of total Turnover or Gross Receipts by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account the above than he can declares profit at the rate of 6% of total Turnover or Gross Receipts or such higher amount.
Eligible Assessee:-
Indian Resident such as:
- Individual;
- Hindu Undivided Family (HUF);
- Partnership Firms (not for Limited Liability Partnership);
- 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.
Eligible Business:-
- any business except the business of plying, hiring or leasing goods carriages referred to in section 44AE; and
- Whose total turnover or gross receipts in the previous year does not exceed an amount of 2 crore rupees.
Section 44AD shall not apply to:-
- a person carrying on profession as referred to in sub-section (1) of section 44AA;
- a person earning income in the nature of commission or brokerage; or
- a person carrying on any agency business.
Restrictions:-
Amended by Finance Act 2016:-
- an Eligible Assessee who had declared profit for any previous year in accordance with the provisions of this section, than he have to declare profit in accordance with the provisions of this section for the five assessment years relevant to the previous year. (For example if assessee take benefit of this scheme in A/y 2017-2018 than he have to declare for next 5 years i.e. form A/y 2018-2019 to 2022-2023).
- If he does not declare profit for any of the five assessment years relevant to the previous year succeeding such previous year in accordance with the provisions of this section than he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of this section. (Take the example given above if eligible assessee not declare profits according to this section in A/y 2019-2020 than he is not eligible to take benefit of this section from A/y 2020-2021 to 2024-2025).
- In this case if his total income exceeds the maximum amount which is not chargeable to income-tax than he shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AAand get them audited by practicing Chartered Accountant. (Take the example discussed above; in that case he will be required to get books of accounts audited in A/y 2020-2021 onwards for next 5 years).
Advance Tax Requirement:-
- The taxpayers who have opted for this scheme have to pay the whole amount of their advance tax in one installment on or before 15 March.
SECTION 44ADA
Introduction:-
- an Eligible Assessee engaged in the Eligible Profession who declares the profit of 50% of total Gross Receipts or such higher amount as the case may be for the eligible profession and whose total Gross Receipts do not exceed Rs. 50 lakhs in a previous year, shall be deemed to be the profits and gains of such profession chargeable to tax under the head “Profits and gains of business or profession”.
- In this case the assessee not eligible to take benefit of sections 28to 43C.
Eligible Assessee and Business:-
Indian Resident such as:
- Individual;
- Hindu Undivided Family (HUF);
- Partnership Firms (not for Limited Liability Partnership) and
Who is engaged in a profession such as:
- Legal
- Medical
- Engineering
- Architectural
- Accountancy
- Technical Consultancy
- Interior Decoration
- other profession as is notified by the Board in the Official Gazette:
- Authorized representatives
- Film Artists
- Certain sports related persons
- Company Secretaries and
- Information technology
When shall the assessee be required to maintain books and to get the accounts audited:-
- Income from profession is declared at a rate lower than 50% of gross receipts, AND
- Total income of the assessee exceeds the maximum amount which is not chargeable to income-tax.
Advance Tax Requirement:-
- The taxpayers who have opted for this scheme have to pay the whole amount of their advance tax in one installment on or before 15 March.
Disclaimer:-
The contents of this article are solely for informational purpose. It does not constitute professional advice or a formal recommendation.