Section 44AD of ITA, 1961 : Section 44Ad: Special Provision For Computing Profits And Gains Of Business On Presumptive Basis

Explanation using Example

Imagine a scenario where Mr. Sharma runs a small garment manufacturing business. His business is a partnership firm and he is a resident of India. For the financial year 2022-23, Mr. Sharma's business had a total turnover of ₹1.5 crores. Mr. Sharma decides to opt for the presumptive taxation scheme under Section 44AD of the Income-tax Act, 1961.

Since his turnover is less than ₹2 crores and he is an eligible assessee, he can declare 8% of his turnover as his income, which would be ₹12 lakhs (8% of ₹1.5 crores). However, if he received ₹60 lakhs of the turnover through account payee cheques or electronic clearing, he can declare 6% of that amount as income, which would be ₹3.6 lakhs, and 8% on the remaining ₹90 lakhs, which would be ₹7.2 lakhs. Therefore, his total presumed income will be ₹10.8 lakhs.

By opting for this scheme, Mr. Sharma simplifies his tax filing as he does not need to maintain detailed books of account or audit them for this year, as long as his income does not exceed the taxable limit and he adheres to the provisions of Section 44AD.

However, if in the next financial year, Mr. Sharma decides not to opt for the presumptive scheme and his accounts are required to be audited, he will not be able to opt for the presumptive taxation scheme again for the next five assessment years.