The government of India has introduced several tax* provisions to enable comfortable tax-paying procedures for every section of Indian society. Therefore, every taxpayer must get educated about the tax laws to use the provisions to avail maximum benefits. Section 44AD is one such tax provision exclusively introduced for the benefit of small taxpayers. Here is a detail about it for your reference.

What is Section 44D of the Income Tax Act?

Section 44D is based on the presumptive taxation scheme. It means small taxpayers, having less than ₹2 crores (₹5 crores subject to certain criteria based on digital transactions) turnover, need not maintain books of accounts and get them audited. Instead, the profits will be presumed to be 8% of their turnover. And, when the profits from income are credited digitally or by a bank, the profit will be presumed as 6%.

A taxpayer availing of tax benefits under Section 44AD will not be allowed to claim deductions for the expenses under Section 30 to Section 38. Assessee opting for the presumptive taxation should pay 100% advance tax by the 15th of March every financial year. Taxpayers can file their tax returns under ITR-4, which is simpler and shorter than regular ITR-3.

Applicability of Section 44D

For availing of the benefits under Section 44D, it is important to understand the eligibility criteria. Here is a detail about it.

• Presumptive taxation applies to Resident individuals, Hindu Undivided Families and Partnership Firms who have not claimed an exemption under Section 10A, 10AA, 10B or Section 10BA of the Income Tax Act, 1961. And the scheme does not apply to Limited Liability Partnerships.

• The individual or firm has to declare a minimum of 8% or 6% profits as the presumptive income under Section 44AD.
  

Several amendments have been made to Section 44AD on the yearly budgets.

A new condition for the taxpayers choosing the presumptive taxation scheme is that they should continue utilising it for at least 5 years, and it should be in a continuation. And, in case the taxpayer files the profits according to customary business conditions any time before the end of 5 years, he will not be able to benefit from the presumptive taxation and will also not be allowed to utilise the same for the next five years. The government introduced this condition to discourage taxpayers from misusing the scheme and often changing their preferences.

Businesses Excluded Under Section 44AD

Here is a list of businesses that the taxpayer can not consider for the benefits under Section 44AD.

• Businesses engaged in the plying, hiring or leasing of goods mentioned under Section 44E.

• Individuals associated with an agency or earning brokerage or commission.
  

Taxpayers making an income from a profession stated under Section 44AA(1) are also not eligible.

Declaring Income

There are different ways to declare the income to consider the presumptive taxation scheme.

Suppose the taxpayer declares that the total turnover is less than the stated presumptive income or 8% of the turnover and opts for reporting the income based on regular computation. He is liable to maintain the books of accounts and the regular tax if the calculated income is greater than the basic exemption limit. And, if the taxpayer had been utilising the tax benefits under Section 44AD the previous years, he will be disallowed from the same for the next five years.

If the taxpayer has declared income higher than the mentioned 8% of the turnover, he does not have to maintain the book of accounts.

Other Points to Consider

Here are a few other pointers regarding Section 44AD.

• If the taxpayer has more than one business, the tax will be calculated on the total turnover of the businesses.

• Suppose the taxpayer has income from business and profession. The income from the business is applicable for the tax benefits under Section 44AD based on the eligibility conditions, and the income from the profession is taxable under the applicable tax slabs.

• Taxpayers can also claim tax deductions under Section 80C along with the tax benefits under Section 44AD.
  
  

Here is a detail about that.

While taxpayers can avail of such tax benefits for their businesses, they can benefit from tax* deductions and exemption benefits from investments made in different financial instruments. For example, when you purchase the online life insurance policy or otherwise, your premium for the policy and the payout from the policy will qualify for the deduction under Section 80C and Section 10(10D), respectively.

In addition, life insurance companies have introduced different life insurance plans with flexible features to ensure the policy benefits satisfy the financial needs of their customers as demanded. For instance, when you purchase our Tata AIA life insurance policy, you can benefit from ensuring a life cover, savings and investment benefits. Furthermore, various comprehensive solutions extend flexible features by providing different premium payment and policy payout options.

Conclusion

Section 44AD details the tax provisions for small taxpayers based on a presumptive taxation scheme. The taxpayers qualifying and opting for this scheme need not maintain the book of accounts to get them audited subject to prescribed limits of annual turnover for the year. The profits for such taxpayers will be presumed at 8% or 6% of the turnover based on the fulfillment of applicable conditions.

The tax benefits will be based on how you declare the income. There are certain businesses excluded from the consideration of such tax benefits. Therefore, every taxpayer must understand the tax provisions, terms and conditions and eligibility criteria before utilising the stated benefits. And to obtain the tax benefits, one can always look into investing in financial instruments.

L&C/Advt/2022/Jul/1569