44AD

 ### **Section 44AD: Presumptive Taxation Scheme for Small Businesses**


Section 44AD of the Income-tax Act, 1961 provides a **presumptive taxation scheme** for small businesses to simplify compliance and reduce the burden of maintaining detailed books of accounts.


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### **1. Applicability of Section 44AD**

This section applies to:

- **Eligible Assessees**:

  - Resident **individuals**,

  - **Hindu Undivided Families (HUFs)**, and

  - **Partnership firms** (excluding LLPs).

- **Eligible Businesses**:

  - Any business (excluding plying, hiring, or leasing of goods carriages covered under Section 44AE and professionals covered under Section 44ADA).

  - The total turnover or gross receipts of the business should **not exceed ₹3 crores** (from AY 2024-25, previously ₹2 crores).


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### **2. Presumptive Income Computation**

- The income is presumed to be **8%** of the total turnover or gross receipts.

- If transactions are made via digital mode (banking channels, UPI, etc.), the presumptive income rate is **6%**.


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### **3. Exemption from Maintenance of Books & Audit**

- A taxpayer opting for **Section 44AD is not required to maintain books of accounts** as per Section 44AA.

- No need for a **tax audit under Section 44AB**.


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### **4. Deduction Not Allowed Under Chapter VI-A**

- Any deductions under **Chapter VI-A (like Section 80C, 80D, etc.)** are not allowed separately, as the presumptive income is considered after such deductions.


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### **5. Advance Tax Provisions**

- Instead of quarterly advance tax payments, the **entire tax liability must be paid by 15th March** of the financial year.


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### **6. Restriction on Exit and Re-entry**

- If a taxpayer **opts out of Section 44AD** in any year, they **cannot opt back for the next 5 assessment years**.


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### **7. Who Cannot Opt for Section 44AD?**

- **Non-resident taxpayers**.

- **LLPs (Limited Liability Partnerships)**.

- **Professionals** covered under **Section 44ADA**.

- Business involved in **commission, brokerage, agency businesses**.

- Any **business earning income from plying, hiring, or leasing goods carriages** (covered under Section 44AE).


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### **8. When is Audit Required Even Under 44AD?**

- If a taxpayer declares **income lower than 8% (or 6%)** and **total income exceeds the basic exemption limit**, they **must maintain books of accounts and get an audit done** under **Section 44AB**.


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### **Example for Understanding**

🔹 **Case 1: Opting for 44AD**  

A trader has a **turnover of ₹1.5 crores** and all sales are through **bank transactions**.  

- Presumptive income = **6% of ₹1.5 crores = ₹9 lakhs**  

- **No tax audit or books of accounts required**.


🔹 **Case 2: Declaring Less than 6% Income**  

The same trader declares **income of ₹5 lakhs** instead of ₹9 lakhs.  

- Since **income is lower than 6% and exceeds the exemption limit**,  

- **Tax audit is required** under **Section 44AB**.

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