Section 44AD: Presumptive Taxation for Businesses

1. Eligibility Criteria:

• Applicable to resident individuals, Hindu Undivided Families (HUFs), and partnerships (excluding Limited Liability Partnerships) in specific businesses.
• Turnover or gross receipts should not exceed Rs. 2 crores in the financial year.

2. Presumptive Taxation:

• No requirement to maintain regular books of accounts.
• Taxable income calculated at a prescribed percentage of total turnover:
  • 6% for non-cash transactions.
  • 8% for cash transactions.

3. Deductions and Expenses:

• Taxpayers deemed to have claimed deductions for various expenses.
• No additional deductions allowed under other Income Tax Act provisions.

4. Filing of Tax Returns:

• File income tax returns (ITR) in Form ITR-4.
• Not required to maintain regular books of accounts or undergo audit under Section 44AB.

Example:

• Mr. A, a retailer with a turnover of Rs. 1.5 crores, opts for Section 44AD.
• Taxable income = 6% of Rs. 1.5 crores = Rs. 9 lakhs.

Section 44ADA: Presumptive Taxation for Professionals

1. Eligibility Criteria:

• Applicable to resident individuals and HUFs in specified professions.
• Gross receipts should not exceed Rs. 50 lakhs in the financial year.

2. Presumptive Taxation:

• No need for regular books of accounts.
• Taxable income calculated at 50% of total gross receipts.

3. Deductions and Expenses:

• Taxpayers deemed to have claimed deductions for various expenses.
• Limited deductions under Section 80CCD (1) and Section 80CCD (2).

4. Filing of Tax Returns:

• File income tax returns (ITR) in Form ITR-4.
• Exempted from maintaining regular books of accounts or undergoing audit under Section 44AB.

Example:

• Dr. B, a medical practitioner with gross receipts of Rs. 40 lakhs, opts for Section 44ADA.
• Taxable income = 50% of Rs. 40 lakhs = Rs. 20 lakhs.

Case Study: Mr. C, a Contractor under Section 44AD

• Mr. C, a resident individual, runs a contracting business with a turnover of Rs. 1.8 crores.
• Opts for Section 44AD with an 8% presumptive tax rate for cash transactions.
• Taxable income = 8% of Rs. 1.8 crores = Rs. 14.4 lakhs.
• No need for regular books of accounts or audit; files ITR-4.

Conclusion:

While Sections 44AD and 44ADA offer a simplified tax calculation process, it’s crucial to assess their suitability for each business or profession. Consulting a tax professional is advisable to make informed decisions based on individual circumstances.