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Do You Get to Adopt the Provisions of Section 44AD? Know Here!

Updated on June 11, 2024 , 4851 views

To decrease the tax burden and to offer relief to small tax assesses from laborious work, the Indian government has integrated a Presumptive Taxation.scheme. Businesses that are adopting this scheme are not compelled to maintain the regular account book. Instead, they can directly declare their Income at the prescribed slab rate. Such a respite, isn’t it?

This presumptive taxation scheme is basically framed under two different sections - Section 44AD and 44AE of the income tax Act. In this post, let’s have a look at the provisions that are covered under the former section - 44AD.

Section 44AD

The Eligibility Criteria for Section 44AD of the Income Tax Act

Below mentioned are the types of assesses who can adopt the provisions covered under the presumptive taxation scheme of section 44AD:

  • Partnership firms (apart from limited liability partnership firms or LLP)
  • hindu undivided family
  • Resident individual taxpayers

However, for adopting this possible scheme, certain conditions should be fulfilled, such as:

  • The individual’s or the firm’s annual turnover or gross Receipt in the previous year should not be more than the section 44AD limit, which is Rs. 2 crores
  • Persons or firms who haven’t claimed tax Deduction under the income tax sections 10A, 10AA, 10B, 10BA during a specific assessment year are eligible to adopt the provisions of the section, and the same goes for those firms and individuals who haven't claimed deduction under section 80HH to 80RRB
  • Firms or individuals who are involved in the business of hiring goods carriages and plying are not eligible to take the benefits of this section
  • Earlier, individual assesses or firms working in professional services and earning an income in the form of commission or brokerage could not take the advantages of this presumptive taxation scheme; however, the same got amended with the union budget in effect from 1st April 2017, and now professionals can adopt the plan as well

Applicable Rate Under Section 44AD

Eligible assesses who want to choose the presumptive income under section 44AD would have to calculate their income on the Basis of estimation. Generally, it is calculated at 8% of total annual turnover or gross receipts of the business for the previous year. A taxpayer can also declare more income in his ITR than the presumptive income displayed according to the scheme.

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Key Points Pertaining to Section 44AD Applicability

  • If the assessee is working on more than one business, the turnover of all of the businesses in question would be considered to figure out the eligibility so as to adopt the presumptive taxation scheme
  • In case the assessee is working in both business and professional practices, the provisions of this presumptive taxation scheme can be adopted only for the purpose of business, and the income coming from the profession will have to be calculated according to the normal provision of the Income Tax Act
  • An assessee is eligible to claim a tax deduction and get benefits under Section 80C to 80U even if he is declaring his income according to the presumptive taxation scheme under this section

The primary objective of the presumptive taxation scheme under this section is to give relief to small taxpayers from the gruelling task of maintaining accounts book. An assessee, who chooses to adopt the provisions of this scheme, doesn’t have to audit the accounts. However, you must remember that this is only applicable to such businesses that have been covered under section 44AA.

Also, if the tax payer’s actual income is less than the presumptive income, which is 8% of the gross receipt or the total turnover, then he would have to maintain the records and get it audited according to the Sections 44AA and 44AB. And then, if the actual income is more than the presumptive income scheme, then the assessee can declare higher income as per the given option.


Being a taxpayer, you would surely want to be free of auditing and maintaining records, isn’t it? And, if you have a business, section 44AD turns out to be even more rescuing. So, find out if you get covered under this presumptive scheme or not to gain the advantages.

All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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