The existing provisions of the Income-tax Act provide for taxation of income on presumptive basis in the case of following business:
1. construction business,(Section 44AD)
2. income from goods carriages (Section 44AE) and
3. business of retail trade.(Section 44AF)
Section 44AD prescribes a method of presumptive taxation for assessee engaged in the business of civil construction or supply of labour for civil construction in which a sum equal to eight percent (8%) of the turnover is deemed to be the profits and gains from business.only if the total turnover of the assessee is less than Rs. 1 Crore. In case the total turnover, of the assessee is more than Rs. 1 Crore, income would be computed as per the normal provisions of the Income Tax Act (i.e. Revenue –Expense-Depreciation) and the assessee would also be required to get his accounts audited under section 44AB
Moreover, if an assessee is applying section 44AD and assuming his income to be 8% of total turnover, he won’t be allowed to claim any expense or depreciation. Any deduction allowed under provisions of Section 30 to 38 shall, for the purpose of income computed under this section be deemed to have been already given full effect and no further deduction shall be allowed under these sections.
However, remuneration or interest paid to partners shall be allowed as deduction from the income computed under this section. Such deduction shall be subject to conditions and limits specified u/s
The provisions of Chapter XVII-C relating to Advance Tax would also not apply in cases where section 44AD is applied.
Applicability of Section 44AD
1. Section 44AD applies to all businesses except the business of plying, hiring or leasing goods. Section 44AD won’t apply in case of plying, hiring or leasing of goods as these have already been
covered under section 44AE
2. As /Section 44AD/ specifically mentions the word business, therefore section cannot be applied in case of professionals.
3. Section 44AD only applies in case of Individuals, Partnership & HUF provided they are Resident in India, This section does not apply in case of Limited Liability Partnerships as they have been specifically excluded from this section.
The assessee may choose not to opt for the scheme and may declare an income lower than 8% of the gross receipts. However in such a case, the assessee shall have to keep and maintain books of accounts and get his accounts audited by a chartered accountant under section 44AB.
The following would form a part of turnover and would be included in the computation of turnover for the purpose of section 44AD
1. VAT, Excise Duty, Cess and other Levy
2. Sales of unusable empties and supplies
3. Service Charges charged for delivery
However, the following will not form a part of the total turnover for the purpose of section 44AD
1. Advance or deposits received
2. Consideration received on sale of fixed assets
3. Cash or other discounts
Other Relevant Points regarding Section 44AD
1. In case an assessee is carrying on more than 1 business, the total turnover of all the businesses should be taken into account.
2. However, if the assessee is carrying on business as well as profession, Section 44AD can be applied on the income earned from business. Computation of Income earned from Profession would be computed as per the normal provisions of the Income Tax Act
3. An assessee declaring his income as per presumptive taxation under section 44AD can also claim tax benefit of deductions under chapter VI A
In case an assessee is applying presumptive taxation under section 44AD, he should file his income tax return