Section 44AD of the Income Tax Act, 1961

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.

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.

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:

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.

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.

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.