Section 44AD: Income of Business 8% as per The Income Tax Act, 1961. Find Complete for Section 44AD. In this article you can find complete details for Section 44AD like - Introduction for Section 44AD, What is Section 44AD, What are the criteria for Section 44AD, How to Apply for Section 44AD, What if he declares income lower than 8%? and Examples for Section 44AD, Now you can scroll down below and Check complete details regarding "Section 44AD: Income of Business 8%"
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What are the criteria?:
- The assessee should be an eligible assessee. ( An eligible person is a resident individual or a resident HUF or a resident partnership firm.)
- He should not claim any deductions under section 10A, 10AA, 10B, 10BA, 80HH, 80RRB.
- His turnover/ gross receipts should not exceed Rs. 2 crore in the relevant financial year. (limit of Rs. 1 Crore has been increased to Rs. 2 Crore in Budget 2016. This revised limit would be applicable from Financial Year 2016-17 onwards.)
- He can be engaged in any business except for the following:
- Profession as refereed in section 44AA(1),
- Income in the nature of Commission or Brokerage,
- Agency business,
- Plying, hiring or leasing goods carriages.
Applicability of Section 44AD
A person can opt for presumptive scheme under section 44AD- Only applies in case of Individual, Partnership & HUF provided they are Resident in India.
- who is carrying his business and his total sales/turnover does not exceeds Rs. 2 crores and
- who is not claiming deductions under section 10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant year and
- who is not carrying business of
- plying, hiring or leasing goods carriages referred to in sections 44AE.
- any agency business. and
- who is not earning income in the nature of commission or brokerage
Amendments in Budget 2020-2021
Turnover not more than Rs. 5 crores, but Cash receipts not exceeding 5% of total turnover and cash payments not exceeding 5% of total expenditure
⇓
Not liable for Tax Audit from F.Y 2020-2021 onwards
Example - A company having turnover Rs. 4.5 crores in F.Y 2020-21, then that company is not liable for tax audit.
Turnover less than Rs. 2 crores(but more than Rs.1 crore), but Cash receipts exceeding 5% of total turnover and cash payments exceeding 5% of total expenditure
⇓
Liable for Tax Audit under section 44AB from F.Y 2020-2021 onwards if the assessee does not declare profits at least 6% or 8% as per section 44AD
How to apply the above section?:
- His taxable income would be considered to be at least 8% of his total turnover/ gross receipts.
- He can voluntarily declare more income.
- He is not required to maintain books of accounts.
- The individual/HUF can submit ITR 4S which is quite easy as compared to ITR 4.
- He will not get any deductions under section 30 to 38. (Example: he cannot claim deduction in respect of depreciation as it is already deemed to be allowed.)
What if he declares income lower than 8%?:
If he declares income lesser than 8% of his turnover/ gross receipts, irrespective of his turnover or income, he would be required to:- Maintain books of accounts as per section 44A
- Get accounts audited under section 44AB.
Examples:
- If Mr. Taxplanner has a total turnover/ Gross Receipts of Rs. 30 Lakhs & he is an eligible assessee, then he can consider at least 2.4 Lakhs (8% of Turnover/Gross Receipts) to be his Taxable income under section 44AD.
- If Mr. Chintalal has a total turnover/ Gross Receipts of Rs. 250 Lakhs & he is an eligible assessee, still he cannot compute his income under section 44AD as his turnover/ Gross Receipts exceeds the specified limit of Rs. 2 crore.