Understanding Section 44AD: Presumptive Taxation Scheme

Introduction to Section 44AD: Aimed at simplifying taxation for small businesses. Allows eligible taxpayers to declare income based on turnover. Eligibility Criteria: Resident individuals, HUFs, and partnership firms with turnover up to INR 3 Crore. Exclusions: Non-residents, LLPs, certain specified businesses. Calculation of Presumptive Income: Gross sales or turnover up to INR 3 Crore. Income reported at 6% or 8% of turnover, based on nature of transactions.

Illustration: Akshay's Business: Gross sales: INR 1.8 Crore. Presumptive income: INR 14,40,000 (8% of sales). Tax Treatment and Compliance: Taxation at slab rates applicable to business income. Limited expense deductions, but deductions under Chapter VI-A available. Advance tax payment due by 15th March to avoid interest penalties.

Filing Income Tax Returns: Use Form ITR 4 for reporting presumptive income. Specify relevant Business and Profession Codes. Consider Form ITR 3 if additional income sources like capital gains. Exemption from Maintaining Books of Accounts: Section 44AA relief if income reported at least 6% or 8% of gross receipts. Maintenance required if income reported lower and total income exceeds INR 2,50,000.

5 Year Rule Under Section 44AD: Continuous opting for the scheme for five consecutive financial years required. Non-compliance results in ineligibility for the scheme for subsequent five assessment years. Understanding the provisions of Section 44AD ensures small businesses can streamline their tax compliance processes and leverage the benefits of presumptive taxation for ease of operation and reduced administrative burden.