Presumptive tax scheme - section 44ad

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piyush modi (Querist)
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01 March 2016 Can someone explain section 44AD in detail please. Budget yesterday increased the turnover limit under this scheme to 2 crores.
Lets say my existing sole propritorship business was doing a turnover of 1.5 crores with a profit of 30 lakhs. Now with his increase I will fall withing the limit for this scheme. Does that mean irrespective of the actual profit in my business I can simply pay tax on 8% of turnover? Thus my taxable income will get reduced to 12 lakhs (1.5cr * 8%) from the actual 30 lakhs?

Can I actually show my income to be 30 lakhs in by books but pay tax only on 12 lakhs? Or this applicable only if i don't maintain books?
What's the catch in this scheme? Seems too good to be true.

Now what if my turnover is trending towards 2 crores, but by the end of the year it ends up at 2 crores 2 lakhs. And profit is still 30 lakhs. Now will my taxable be 30 lakhs instead of 12 lakhs just because i went over the limit by 1-2 lakhs?

What If my business turnover is 3 crores, and I create two separate partnership firms to split this to get turnover of 1.5 cr each? Then each firm can simply tax on 12 lakhs presumed income (1.5 cr * 8%) ??

CS Advocate Abhishek Goyal

CS Advocate Abhishek Goyal (Expert)
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01 March 2016 Amendment in section 44AD which increases the limit of turnover from Rs. 1 crore to 2 crore will apply from 1.4.17 and AY 2017-18 only, therefore for AY 2016-17 the limit of turnover still applies at Rs. 1 crore.

piyush modi

piyush modi (Querist)
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01 March 2016 Thanks Abhishek. I get it that this is applicable from FY16-17, AY 17-18, that's as per general norms for everything declared in budget where its applicable for next FY. My query doesn't change, just assume that I'm asking for similar numbers for the coming FY.

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sanjeev kumar goel

sanjeev kumar goel (Expert)
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02 March 2016 Dear Piyush Section 44AD is related with presumptive income tax scheme. As per Section 44AB every assessee has to get his accounts audited if his turn over is 1 Crore or above during the previous year but for those assessees whose turnover is less than 1 Cr in the previous year, they have to show their profit or income from business or profession U/S 44AD @8% of their turn over. However they may declare U/S 44AD higher than 8% income of their turn over but if they show less than 8% then they have to get their accounts audited U/S 44AB of the Income Tax Act. In the Union Budget 2016-2017 this limit of 1Cr has been proposed to increase to 2 Cr. It means that now the assessees whose turn over is equal to or less than 2 Cr in the financial year 2016-2017, has to declare 8% profit otherwise to get their accounts audited U/S 44AB.
Now we come to your query. Suppose your turn over for the financial year 2015-2016 is 1.5 Cr and your profit is 30 lakhs even than you have to get your accounts audited as per Section 44AB as the existing thresh hold limit is 1 Cr U/S 44AB. It does not mean that your income will be treated 12 Lakhs instead of 30 Lakhs. If you have shown 30 Lakhs profit in your books of account then you have to pay taxes on 30 Lakhs not on 12 Lakhs.
Your next query is taht if your turn over crosses 2 Cr limit in the financial year 2016-2017 still you have to get your accounts audited as the proposed limit is 2 Cr U/S 44AB. If your turn over is less tahn 2 Cr than you may declare 8% profit U/S 44Ad and if your turn over is less than 2 Cr but you declare your profit less than 8% in that case you also have to get your accounts audited U/S 44AB.
If your turn over is 3 Cr and you split your business in two or more separate firms having less than 2 Cr turn over each in that case you may opt 8% option U/S 44AD in each firm.
I hope now you have understand the section 44AB and 44AD and even if you have any query you may consult your tax consultant or write here for more clarifications.