Section 44AD of the Income Tax Act, 1961 SPECIAL PROVISIONS FOR COMPUTATION OF PROFIT AND GAIN OF BUSINESS ON PRESUMPTIVE BASIS
This section provides that ELIGIBLE ASSESSEES can in respect of ELIGIBLE BUSINESS can declare 8% or more of the Total turnover or gross receipts on account of such business as the Income from Business or Profession taxable under the head Profit and Gain of Business or Profession.
However the person carrying on profession as refereed to under Sec 44AA(1) or carrying in the business of Commission or Brokerage or Agency business can not declare income applying the provisions of Section 44AD
In this case the eligible assesses who declares income under this section is not required to maintain the books of
accounts in respect of such business. It means section 44AA shall not apply to the persons who opt for section 44AD.
Now the question arises what’s the meaning of eligible business and eligible assesses in respect of this section. Here the eligible assessee means – PROFIT AND GAIN OF BUSINESS ON PRESUMPTIVE BASIS
a. An individual , HUF or a partnership firm who is resident other than a LLP. and
b. Who has not claimed any deduction s under section 10AA or Under Section 80IA to 80RRB.
Interpretation : Only resident individual, HUF and Partnership firm can declare income under SEC 44AD. An LLP can not declare income under this section .
Moreover in case a resident individual, HUF or a partnership firm claims any deduction under section 10AA or Sec 80IA to 80RRB then also such assessee can not declare income under this section.
Eligible business here means any business other than the business of plying , hiring or leasing of goods carriages under section 44AE whose total turnover or gross receipts does not exceed an amount of Rs. 1 crore.
Note : Section 44AD overrides Sec 28 to Section 43c. It means nothing contained in Section 28 to Sec 43C applies to
assess who declares income under Section 44AD.
Allowability of the Expenses from the Income Declared under Section 44AD
All the expenses are already deemed to be already deducted from the income under this section. It means
no further deductions are allowed under this section from the income declared , for expenses.
However if the assessee is a Partnership firm then remuneration and interest paid to partners of the firm shall be deductible from the income declared under this section. PROFIT AND GAIN OF BUSINESS ON PRESUMPTIVE BASIS
Depreciation : The assessee can provide deprecation to the assets of the business in respect of which the provisions of Section 44AD is claimed and can show WDV value of the assets in the balance sheet.
However the depreciation amount will be assumed to be already deducted from the income and no further amount of deprecation can be deducted from the income declared under section 44AD.
Advance Tax : The provisions in respect of advance tax will not apply to the assessee who opt for section 44AD.
Applicabilty of Section 44AB : This section provides that if the assessee claims that his income is lower then the deemed income under Section 44AD and his total income exceeds the maximum amount which is not chargeable to tax then such assessee is required to maintain the books of accounts and get his accounts audited under Section 44AD and furnish the prescribed report.
Current year losses and brought forward losses: Since this section overrides Section 28 to Sec 43C but does not overrides Chapter VI , so current year losses and brought forward losses can be set off from the income declared under this section. PROFIT AND GAIN OF BUSINESS ON PRESUMPTIVE BASIS
Current Year Depreciation and Brought Forward Depreciation:Since the provision of current year depreciation and brought forward deprecation are provided under Section 32 and Section 44AD overrides Section 28 to sec 43C , so current year depreciation and brought forward deprecation can not be set off against the income declared under Sec 44AD.
Deduction under section 80C to 80GGC : This section provides that the assessee who opt for Section 44AD can claim deductions under section 80C to 80GGC. However no deduction can be claimed from Section 80IA to 80RRB
PROFIT AND GAIN OF BUSINESS ON PRESUMPTIVE BASIS
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