Section 44AD of Income Tax Act: Guide for Small Business Owners

Section 44AD of Income Tax Act aims to give relief to small taxpayers having business income such as taxpayers engaged in any business other than plying, hiring and leasing referred in section 44AE of the IT Act.

Eligibility

Individual, HUF, Partnership firm, other than LLP. All must be resident in India.

Budget 2023 Update

Turnover limit has been increased from Rs 2 crore to Rs 3 crore for Small Businesses

Turnover limit

• 2 Crore
• 3 Crore (if 95% receipts are in Digital Transaction)

Businesses Covered u/s 44AD

• Furniture Shops
• Retails Stores
• Medical Stores
• Garment Business
• Traders
• Wholesale Shop
• AC, TV, Fridge Sellers

Computation of minimum profit

• 8% of turnover
• 6% in respect of turnover received by account payee cheques, bank etc.

What to do if the income is lower then 6% or 8%?

When a declared income is below 6% or 8%, then a person must –

• Maintain the books of accounts u/s 44AA

• Get accounts audited u/s 44AB

Note : Once opt for Section 44AD of Income Tax Act, you must follow the same for next 5 years. If you fails to do so, then scheme will not be available for next 5 Years.

Points to Remember

• An assessee can voluntarily declare a higher return.

• All deductions u/s 30 to 38, including depriciation and unabsorbed depriciation are deemed to have already allowed and no further deduction is allowed under these sections.

• In case of a firm, no deduction in respect of salary and interest u/s 40(b) shall be allowed.

• The written down value is calculated where necessary, as if depriciation as applicable has been allowed.

• For firms opting for presumptive taxation under Section 44AD, specific deductions u/s 40, 40A, and 43B are not applicable, as income is presumed at 8% or 6% of turnover, and no further deductions are allowed.

• An assessee opting for this scheme should pay the advance tax related to such business through 1 installment only i.e., by 15th March of the financial year instead of 4 installments.

• Exempted from maintainance of books of account related to such business as required u/s 44AA.

• A taxpayer whose turnover does not exceeds Rs. 5 crore may declare an income less than 8% or 6% of its total sales and yet will not be required to get the accounts audited if cash receipts and payments were upto 5% of total receipts and payments.

Related Articles

Section 44AB of income tax act – Click Here

Tax Audit Report – Click Here

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