Income Tax us 44AD

Income Tax us 44AD?

What is Income Tax us 44AD ?

There is a Special Tax Provision for Businesses,

u/s sec 44AD of Income Tax Act used by the Majority of Businesses,

In Respect of Profits and Gains of Businesses,

Other than in the Business of plying, hiring, leasing of goods carriages, Commission and brokerage or Agency business,

In Respect of Profits and Gains from Profession,

Except for specified Profession, 

For Total Gross Receipts from Business or Profession (Except for specified professions), earning up to 2 Crores,

In order to give Relief, Simplify, Ease & Reduce, the burden of Tax Compliance

For Small Taxpayers Resident in India

Without Having to Maintain Books of Accounts,

Without Having to get the Accounts Audited,

And has not claimed a deduction under Sec 10A/10AA/10B/10BA/80HH/80RRB in the relevant year.

A Sum equal to 8% or higher % of your Gross Receipts,

Or A Sum equal to 6% or higher % of your Gross Receipts (If payments are made through Account payee crossed cheques, Demand draft, Bank transfers, or any other electronic modes of payment, digital payments), is to promote cashless economy,

Shall be Deemed to be Profits & Gains from such Business or Profession (Except for specified professions).

Though there are 3 sections as per Income Tax Act for Presumptive Taxation for Business or Professions, But I will be covering mainly Income Tax us 44AD in this article.

Section 44 AD- Income from Business except for plying, hiring, leasing of goods carriages, Commission and brokerage or Agency business, and Professional Income(Except for Specified Profession as per Sec 44AA(1)

Section 44ADA- Income from Specified Profession as per Sec 44AA(1)

Section 44AE-Income from plying, hiring, leasing of goods carriages, Commission and brokerage or Agency business,

44AD of Income Tax Act Applicability,

Every Person carrying on any business except for, Plying, hiring, leasing of goods carriages, agency business, Commission or Brokerage or any other Profession (Except for specified professions as mentioned u/s 44AA(1)).

Presumptive Income Meaning under Sec 44AD,

Any Eligible Assessee whose Total Gross Receipts from Business income, is less than or equal to Rs.2 Crores in a Previous Year, can declare Income at a Prescribed rate u/s Section 44AD for AY 2022-23.  

Who can file income tax return u/s 44AD? Eligible Assessee,

In the case of an Assessee, being a Resident Individual, HUF & Partnership Firm can opt for Income Tax us 44ADNon-Residents and Other Persons are not Eligible Assessees for Sec 44AD.

Deemed Profit,

A Sum Equal to 8% of the Total Gross Receipts of the Business or Profession (Except for specified professions) or a Sum Higher than 8%, and Or A Sum equal to 6% or higher % of your Gross Receipts (If payments are made through Account payee crossed cheques, Demand draft, Bank transfers or any other electronic modes of payment) as Claimed to have been earned by the Assessee, shall be deemed to be Profits and Gains from Business or Profession.

Deemed Profit is calculated at 8% or higher % of Gross Receipts if Gross Receipts are Less Than or Equal to Rs.2 Crores

Deemed Profit can be Greater than 8% of Gross Receipts, as per your Actual Calculation, still, you can opt for Income Tax us 44AD.

Deemed Profit Can’t be less than 8% of Gross Receipts, in which case you will have to get your Books of Accounts written and Tax Audit done accordingly.

In the event of loss arising from Profits and Gains of Business or Profession, Tax Audit is Compulsory.

How is US 44AD income calculated?

US 44AD income calculation
US 44AD income calculation

100% Digital Payments Cashless Benefits,

You can claim the benefit of Presumptive Taxation u/s Sec 44AD in respect of your Business Income or Income from Profession (Except from specified Profession u/s 44AA(1), by adopting 6% of Gross Receipts as your deemed profits, if you have received 100% Digital or electronic payments instead of 8% of Gross Receipts, which will ensure further Tax saving.

Digital Payments under Sec 44AD
Digital Payments under Sec 44AD

44AD Misuse:

Eligible Assessee’s earning Business or Professional Income (Except for specified professions) sometimes take flat 8% of Gross Receipts as Deemed Profit,

Even if Actual Profits earned as per their Bank, Payment Vouchers, Bills, maybe more than 8% of their Gross Receipts,

Either due to ignorance or lack of Professional guidance.

So, if Actual Profits earned are more than 8% of Gross Receipts, then Deemed Profit should be Calculated Accordingly.

44AD Misuse
44AD Misuse

Features of Presumptive Taxation 44AD Applicable only for Resident Individual, HUF, and Partnership Firm.

Case 1: Presumptive Taxation 44AD- Gross Receipts up to Rs. 2 Crores.

You are a Resident Individual, HUF & Partnership Firm.

You are having a Business or Profession (Except for specified professions),

You are having Gross Receipts from Business or Profession (Except for specified professions) Income Up to Rs.2 Crores

Your Books of Accounts are not Maintained.

You have Opted for Deemed Profit which is at least 8% or higher % of Gross Receipts

Then,

You are not required to get your Accounts Audited u/s 44AB

You have the benefit of Paying the entire amount of Advance Tax as a single installment on or before 15th March or 31st March of the Previous Year.

You don’t have to apply for TAN, Deduct TDS from Payments made, or File TDS Returns

You have any Restrictions for Opting in and out of the Presumptive Taxation 44AD,

There is 44AD Limit for ay 2022-23 or Restriction for entering or exiting the Scheme,

You can enter any time from Regular Tax Filing to Presumptive Taxation 44AD, BUT you can Exit the Presumptive Scheme only after 5 Years of Completion.

Business Expenses can’t be Claimed as a Deductible Expense against the Gross Receipts,

As all Business Expenses are deemed to have been taken into Consideration while calculating Deemed Profit at 8%, no extra business Expense can be Claimed in addition to 92% of Expenses that are already Claimed against the Gross Receipts.

None of the Expenses u/s 30 to 38 can be Claimed against the Gross Receipts

Section 40 to 43B can’t be claimed as an Expense

You can’t claim any Depreciation under 44AD, Unabsorbed Depreciation, Additional Depreciation also, Though Written Down Value (WDV) of the Depreciable Assets Needs to be calculated separately for Calculating the Asset Value.

In case you are a Partnership Firm, Salary, Interest Paid to Partners will not be allowed as a Deduction against your Gross Receipts, since no Expenses can be claimed in addition to 92% of Expenses Which are already Claimed against Gross Receipts In order to Compute the Deemed Profits.

In case you are a Partner of a Firm,

Salary, Interest received as a Partner from the Firm, Will not be treated as Gross Receipts for the Purpose of Income Tax us 44AD.

All Deductions u/s 80 can be Claimed against the Total Income Computed.

Due Date of Filing Income Tax us 44AD is 31St December 2022, In ITR form for Presumptive Income in ITR 4 -Sugam.

If you have missed Filing your Returns till 31st December 2022, then you can file a Belated Return till 31st March 2022 with a Penalty fee.

The Original and Belated Returns can be Revised if you Discover any Omissions or Wrong Statements therein Unintentionally in, Either Selecting the ITR or have Missed Reporting any Income, Expense or overstated Income or Expense in ITR already Filed, you may Revise the ITR before the end of the Relevant Assessment Year 31st March 2022 Or before the completion of the Assessment, whichever is earlier.

Case 2: Tax Audit for Business or Profession (Except for specified professions) –44AB- Gross Receipts above Rs.2 Crores

You are a Resident Individual, HUF & Partnership Firm.

You are having a Business or Profession (Except for specified professions),

You are having Gross Receipts from Business or Profession (Except for specified professions) ABOVE Rs. 2 Crores

Then,

You can’t opt for Presumptive Taxation 44AD

You are not eligible for Filing under Section 44AD for AY 2022-23 in ITR for Presumptive Income ITR 4

You can’t Opt for Deemed Profit which is 8% or higher % of Gross Receipts,

Books of Accounts are Required to be maintained

You are Required to Pay all Four Instalments of Advance Tax to save Interest on late payment of Taxes,

You have to apply for TAN, deduct TDS from Payments made, or File TDS Returns.

You are required to get your Accounts Audited u/s 44AB

All Business Expenses can be Claimed as a Deductible Expense against the Gross Receipts,

A Regular set of Books of Accounts are maintained as Required u/s 44AA(1), Taking into consideration all the Expenses and computing the Actual Profits.

All Expenses u/s 30 to 38 can be Claimed against the Gross Receipts

Section 40 to 43B can be Claimed as an Expense

Depreciation, Unabsorbed Depreciation, Additional Depreciation can be Claimed too.

In case you are a Partnership Firm, Salary, Interest Paid to Partners will be allowed as a Deduction against your Gross Receipts, since the Regular set of Books of Accounts are maintained and all Actual Expenses are taken into consideration while calculating the Actual Profits.

In case you are a Partner of a Firm, Salary, Interest received as a Partner from the Firm, will Continue to be treated as Gross Receipts of Regular Business Income.

All Deductions u/s 80 can be Claimed against the Total Income Computed.

Due Date of Filing Income Tax us 44AD is 15St February 2022 in Income Tax Return (ITR) 3,

Due Date of Filing Tax Audit Report is 15St January 2022 in Form 3CB -3CD

If you have not furnished your Returns within the time allowed to you that is, till 15St February 2022, then you may furnish the Return at any time for any Previous Year and file a Belated Return before the end of the relevant Assessment Year, that is, till 31st March 2022 for AY2022-23 or before the completion of the Assessment, whichever is earlier with a Penalty fee.

The Original and Belated Returns can be revised if you discover any Omissions or Wrong Statements therein Unintentionally in, either selecting the ITR or have missed Reporting any Income, Expense or Overstated Income, Expense in ITR already Filed, you may Revise the ITR Before the End of the Relevant Assessment Year 31st March 2022 Or Before the Completion of the Assessment, whichever is earlier.

Case 3: Tax Audit for Business or Profession (Except for specified professions) –44AB- Deemed Profit less than 8% of Gross Receipts or a Loss

You are a Resident Individual, HUF & Partnership Firm.

You are having Gross Receipts from Business or Profession (Except for specified professions) Income up to Rs. 2 Crores

You have Claimed a Loss from Business or Profession (Except for specified professions) Income or have Computed Deemed Profit of Less than 8% of Gross Receipts,

And your Gross Receipts is more than Basic Exemption Limit not chargeable to Tax,

Then,

You can’t opt for Presumptive Taxation 44AD

You are not eligible for Filing Income Tax Returns under Section 44AD for AY 2022-23 in ITR for Presumptive Income ITR 4,

You can’t opt for Deemed Profit which is 8% or more of Gross Receipts

Books of Accounts are Required to be maintained,

You are Required to Pay all Four Instalments of Advance Tax to save Interest on late payment of Taxes,

You have to apply for TAN, deduct TDS from Payments made, or File TDS Returns.

You are required to get your Accounts Audited u/s 44AB

All Business Expenses can be Claimed as a Deductible Expense against the Gross Receipts, As a Regular set of Books of Accounts are maintained as Required u/s 44AA(1), Thereby Taking into Consideration all the Expenses and computing the Actual Profits.

All Expenses u/s 30 to 38 can be Claimed against the Gross Receipts

Section 40 to 43B can be Claimed as an Expense

Depreciation, Unabsorbed Depreciation, Additional Depreciation can be Claimed too.

In case you are a Partnership Firm, Salary, Interest Paid to Partners will be allowed as a Deduction against your Gross Receipts, Since the Regular set of Books of Accounts are maintained and all Actual Expenses are taken into consideration while calculating the Actual Profits.

In case you are a Partner of a Firm, Salary, Interest received as a Partner from the Firm will continue to be treated as Gross Receipts of Regular Business Income and file Income Tax Returns in ITR 3

All Deductions u/s 80 can be Claimed against the Total Income Computed.

Due Date of Filing Income Tax us 44AD is 15St February 2022 in Income Tax Return (ITR) 3,

Due Date of Filing Tax Audit Report is 15St January 2022 in Form 3CB -3CD

If you have missed Filing your Returns till 15St February 2022, then you may furnish the Return at any time for any Previous Year and file a Belated Return before the end of the relevant Assessment Year, that is, till 31st March 2022 for AY2022-23 or before the completion of the Assessment, whichever is earlier with a Penalty fee.

The Original and Belated Returns can be revised if you discover any omissions or wrong Statements therein Unintentionally in, either selecting the ITR or have missed Reporting any Income, Expense or overstated Income, Expense in ITR already Filed, you may Revise the ITR Before the End of the Relevant Assessment Year 31st March 2022 Or Before the Completion of the Assessment, whichever is earlier.

Presumptive Taxation 44AD vs Tax Audit under 44AB
Presumptive Taxation 44AD vs Tax Audit under 44AB

Can Section 44AD and Section 44ADA be Claimed simultaneously?

Yes, Sec 44AD & 44ADA are applicable for All Small Businesses or Professions.

If you have

Income from Business (except plying, hiring, leasing of Goods carriages, Agency Business, Commission and brokerage)  

Income from Profession (Except for specified professions),

Income from Specified Profession,

Then, you can claim both simultaneously and file ITR for Presumptive Income ITR 4.   

44AD for Share Trading,

Futures & Options trading is considered as Business Income under the head Profits & Gains of Business & Profession. The total Turnover is calculated by adding Net position each day, whether positive or negative. Deemed Profit under sec 44AD for share trading, is calculated at 6% of such Total Turnover. IN case of Loss from Derivative Trading, Tax audit u/s 44AB is mandatory.

Other Provisions,

Presumptive Taxation for Business or Profession (Except for specified professions) is not mandatory. Assessee may choose to adopt Presumptive Taxation or prepare regular books of accounts and file returns in ITR-3.

Presumptive Taxation is allowed only for Business or Profession (Except for specified professions) and not for all other Incomes of the Eligible Assessee.

ITR form for Presumptive Income (ITR) 4 has to be Filed. Presumptive Income can also be shown in ITR-3, if assessee has incomes in addition to 44AD presumptive income, under the head, COMPUTATION OF PRESUMPTIVE BUSINESS INCOME UNDER SECTION 44AD in ITR-3.

The Original and Belated Returns can be revised, on or before 31st March 2022 or before the completion of the assessment, whichever is earlier.

Salary Income is not taxable under 44AD, only income chargeable under the head Profits & Gains of Business & Profession will be eligible to claim benefit u/s 44AD.

Conclusion,

Business or Profession (Except for specified professions), can opt for Section 44AD for AY 2022-23, for Income up to Rs.2 Crores, Deemed Profit is calculated at 8% or 6% or higher % of Gross Receipts, as the case may be, will be deemed to be Profits & Gains from Business or Profession, need not maintain books of accounts nor get their Accounts Audited under Sec 44AB.

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