44AD. Special Provision for Computing Profits and Gains of Business on Presumptive Basis, for the Assessment Year 2017-18

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As per Section 44AD(1) of Finance act 2016, Notwithstanding anything to the contrary contained in Sections 28 to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee  in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, 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”

Eligible Assessee” means,—

  • an Individual, Hindu Undivided Family or a Partnership firm, who is a resident, but not a limited liability partnership firm (LLP)
  • (ii) 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. – Deductions in respect of certain incomes” in the relevant assessment year.

(b) “Eligible Business” means,—

(i) Any business except the business of plying, hiring or leasing goods carriages referred to   in section 44AE- It may be noted that, If more than 10 goods carriages are owned by assessee, then he will be outside the purview of Section 44AE and hence he will get covered under Section44AD if the Turnover from such business does not exceed Rs.   2 Crore.

  • Whose total turnover or gross receipts in the Previous Financial Year does not exceed an amount of Rs. 2 crores
  • Benefits available to Professionals– Now the benefits of Section 44AD will also be available to Professionals as well. Any professional whose gross total receipts during the year are less than 50 lakhs can make use of this section and declare Income equivalent to 50% of the Gross Receipts. In this new provision, professional includes every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette.

[Notified professions : (a) The profession of authorised representative; and (b) the profession of film artist (actor, cameraman, director, music director, art director, dance director, editor, singer, lyricist, story writer, screen play writer, dialogue writer and dress designer) ,Profession of Company Secretary, Profession of Information Technology.

Special Concession for Receiving Sale Amount through Digital or online Channel-In order to achieve the Government’s mission of moving towards a cash less economy and to give  incentive to small traders / businesses to  accept payments by digital means, it has been decided to reduce the existing rate of deemed profit of 8% under Section 44AD of the Act to 6% in respect of the amount of total turnover or gross receipts received through banking channel / digital means for the financial year 2016-17. However, the existing rate of deemed profit of 8% referred to in Section 44AD of the Act, shall continue to apply in respect of total turnover or gross receipts received in cash . (At the moment, treatment of credit sale is not clear)

Further Deduction for Depreciation not allowed- Section 44AD overrides section 28 to Section 43C of finance act, so depreciation U/S 32 is not allowed as deduction from the income computed under section 44AD.

Salary, Remuneration and Interest etc. paid to Partners in case of Partnership Firms, not allowed-The expenditure in the nature of salary, remuneration, interest etc. paid to the partner as per clause (b) of section 40 shall not be deductible while computing the income under Section 44AD.

Benefit of Presumptive Taxation Scheme , not allowed for next 5 assessment years , in case of breaking the chain of getting income taxed under Section 44AD in any of previous five assessment year –  In case where an eligible assessee  declares profit for any Previous Year u/s 44AD , has  not declared income u/s 44AD in any of the 5 consecutive assessment years, succeeding the assessment year in which income was declared u/s 44AD, then he shall not be eligible to claim the benefit of 44AD for 5 assessment years , subsequent  to the assessment year in which the profit has not been declared u/s 44AD. This limitation will be placed from financial year 2016-17.

– An eligible assessee in respect of eligible business referred to in section 44AD opting for computation of profits or gains of business on Presumptive basis, shall be required to Pay Advance tax of the whole amount in one installment on or before the 15th March of the financial year.

– An Assessee who claims that his Profits and Gains from the profession are lower than the profits and gains specified in sub-section (1) of the proposed section and whose total income exceeds the maximum amount which is not chargeable to income-tax shall be required to keep and maintain such books of account and other documents under Sub-section (1) of Section 44AA and get them audited under section 44AB.

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