Section 44AF of ITA, 1961 : Section 44Af: Special Provisions For Computing Profits And Gains Of Retail Business

Explanation using Example

Imagine a scenario where Mr. Sharma owns a retail clothing store. His total turnover for the previous financial year was Rs. 35 lakhs. Under Section 44AF of the Income-tax Act, 1961, Mr. Sharma can opt for a presumptive taxation scheme where he declares 5% of his turnover as his income, which amounts to Rs. 1.75 lakhs (5% of 35 lakhs), and pays tax on this amount as his profits and gains from business. This simplifies his tax calculation as he does not need to maintain detailed books of account for expenses and deductions.

However, if Mr. Sharma believes that his net profit is less than the presumed 5%, he can declare a lower income, but he will then be required to maintain proper books of account and get them audited as per sections 44AA and 44AB.

It is important to note that Mr. Sharma can only use this scheme if his turnover does not exceed Rs. 40 lakhs, and this section is not applicable for any assessment year starting on or after April 1, 2011, as it has been phased out.