Section 44AD of the Income Tax Act: Presumptive Taxation Scheme

Section 44AD of the Income Tax Act deals with the presumptive taxation scheme for certain eligible taxpayers. It applies to resident individuals, Hindu Undivided Families (HUFs), and partnerships having a turnover of up to ₹2 Crores in the previous financial year.

Under this section, eligible taxpayers can declare their income at a prescribed rate, which is a percentage of their total turnover, without maintaining detailed books of accounts.

However, if a taxpayer declares their income under Section 44AD, they cannot claim any deductions or expenses against their income.

Who is Eligible for Presumptive Taxation Under Section 44AD

The following are the eligible candidates for Section 44AD:

Resident individuals engaged in the business of trading, manufacturing, or eligible professions
Hindu Undivided Families (HUF) involved in certain professions
Partnership firms

To be eligible to opt for this scheme, you need to meet the following conditions:

Eligibility Criteria

The Section 44AD applicability is for taxpayers who are residents of India and are engaged in the business of trading, manufacturing, or eligible professions.

Payment Method

You should receive payments in the form of account payee cheques, account payee bank drafts, or use electronic clearing systems through a bank account.

Turnover Limit

The total turnover or gross receipts of the business or profession should not exceed ₹3 Crores in a financial year. If the turnover exceeds ₹3 Crores, the taxpayer is not eligible to opt for the presumptive taxation scheme under Section 44AD.

Eligible Professionals

For professionals such as doctors, lawyers, architects, etc., the scheme is applicable only if they have total gross receipts of up to ₹75 Lakhs in a financial year.

No Deductions Allowed

The presumptive income calculated under Section 44AD is final. You cannot claim further deductions or allowances against this income. You do not need to maintain detailed books of accounts for such income.

Limitation for Choosing Presumptive Scheme

The Section 44AD limit for choosing a presumptive scheme for five years applies when you declare profits that are lower than 8% or 6%. The limitations of Section 44AD(4) of the Income Tax Act do not apply if you are unable to choose this scheme for any other reason.

The Union Budget of 2023 revised the presumptive taxation limits under Section 44AD and Section 44ADA. The revised presumptive taxation limits for FY 2023-2024 (AY 2024-2025) are as follows:

Category	Revised Limits	Previous Limits
Section 44AD: For small businesses	₹3 Crores	₹2 Crores
Section 44ADA: For professionals like lawyers, doctors, engineers, etc.	₹75 Lakhs	₹50 Lakhs

Tax Audit and Books of Accounts for Presumptive Taxation Under Section 44AD

If you opt for this scheme under Section 44AD of the Income Tax Act, you do not need to maintain detailed books of accounts. However, you need to keep certain basic books of accounts, such as:

A cash book
A summary of the total turnover
Gross receipts of the business or profession

However, if your presumptive income exceeds the maximum amount, you must file an income tax return for the financial year. In such cases, you need to get their accounts audited by a qualified Chartered Accountant.

Provisions Under Section 44AD(4)

Under Section 44AD(4), you need to declare profits as per the presumptive scheme for five years continuously.

However, if you decide to file profits as per the regular taxation regulations, you will lose the presumptive benefits. Moreover, you will not be able to opt for this scheme for the next 5 years.

Tax Audit and Books of Accounts for Presumptive Taxation Under Section 44AD

Taxpayers who opt for the presumptive taxation scheme under Section 44AD are not required to maintain detailed books of accounts. However, they are required to maintain certain basic books of accounts, such as a cash book and a summary of the total turnover or gross receipts of the business or profession.

If the presumptive income of the taxpayer exceeds the maximum amount, the taxpayer will be required to file an income tax return for the financial year. In such cases, the taxpayer is also required to get their accounts audited by a qualified Chartered Accountant.

What is the specified limit on turnover under Section 44AD?

As per Section 44AD of the Income Tax Act, 1961, individuals, HUFs, and partnership firms can opt for the presumptive taxation scheme. This condition applies if their gross turnover is less than ₹3 Crores during the financial year.

What is Section 44AD of presumptive taxation?

The presumptive income under Section 44AD exempts taxpayers with gross turnover less than ₹3 Crores from maintaining books of accounts and performing a tax audit.

Which businesses can file ITR as per Section 44AD?

Any business except the ones mentioned under Section 44AE, i.e. those plying, hiring, or leasing of goods carriages, can file ITR under Section 44AD.

What is the new Section 44AD limit?

The previous Section 44AD limit for gross turnover was ₹2 Crores, which has been revised to ₹3 Crores.

What is the lock in period for Section 44AD?

The lock-in period for Section 44AD is five years. If you opt in, you must continue for at least five years. Opting out before then makes you ineligible for the scheme for the next five years.

Which profession comes under 44AD?

Small businesses, including retail traders and wholesalers, are eligible for the presumptive taxation scheme under Section 44AD. Businesses with a turnover under ₹3 crores can benefit from simplified tax compliance.

Who is eligible for the presumptive taxation scheme?

Small businesses with a turnover under ₹2 crore, including retail traders and wholesalers, are eligible for Section 44AD. Professionals like doctors and lawyers with gross receipts up to ₹50 lakhs can opt for Section 44ADA.