Section 44AD: Special Provisions for Computing Profits & Gains of Eligible Businesses

Section 44AD provides a presumptive taxation scheme for small businesses, allowing them to declare income at a fixed rate without maintaining detailed books of accounts.

1. Applicability

✅ Eligible Businesses:

• Retail traders
• Wholesalers
• Manufacturers (turnover ≤ ₹2 crore)
• Service providers(except professionals covered under Section 44ADA)

❌ Excluded Businesses:

• Professionals(doctors, lawyers, CAs – covered under Section 44ADA)
• Transport operators(covered under Section 44AE)
• Commission-based agents
• Businesses claiming deductions under Sections 10A, 10AA, 10B, 10BA, or 80IA to 80RRB

2. Presumptive Income Calculation

Threshold Limit:

• Normal Cases: Turnover ≤ ₹2 crore
• Cash-Light Businesses (≤5% cash receipts): Turnover ≤ ₹3 crore(from AY 2024-25)

3. Key Benefits

✔ No Bookkeeping Required: No need to maintain books under Section 44AA.

✔ No Tax Audit (Section 44AB): Exempt if income declared at presumptive rates.

✔ Simplified Compliance: No need to disclose expenses or depreciation.

4. Conditions & Restrictions

• Must Declare Minimum Income:
  • 6% (digital) or 8% (cash) of turnover – cannot declare lower profits.
• If Declaring Lower Income:
  • Books & Audit Required: Must comply with Section 44AA & 44AB.
• No Expense Claims: Cannot deduct salaries, rent, depreciation, etc.
• Advance Tax: Pay 100% by 15th March(no quarterly installments).

5. Example Calculation

Case: A retailer with ₹1.5 crore turnover (₹1.2 crore digital + ₹30L cash).

• Presumptive Income:
  • Digital: 6% of ₹1.2 cr = ₹7.2 lakh
  • Cash: 8% of ₹30L = ₹2.4 lakh
  • Total Taxable Income = ₹9.6 lakh

6. Opting Out of Presumptive Scheme

• Once opted, must continue for 5 years.
• If opted out: Regular books & audit apply from the next year.

7. Comparison with Other Sections

8. Penalty for Non-Compliance

• Underreporting Income: Penalty up to 50-200% of tax evaded.
• Late Advance Tax: Interest under Section 234B/C.