Section 44 ADA Presumptive Taxation Scheme

Section 44 ADA Presumptive Taxation Scheme

Introduction 

To give relief to small taxpayers from the tedious job of maintenance of books of account and from getting the accounts audited, the Income-tax Act has framed the presumptive taxation scheme under sections 44AD, section 44ADA, and section 44AE. In this part, you can gain knowledge about various provisions of the presumptive taxation scheme of section 44AD, section 44ADA and section 44AE

Meaning of presumptive taxation scheme

As per the Income-tax Act, a person engaged in business or profession is required to maintain regular books of account, and further, he has to get his accounts audited. To give relief to small taxpayers from this tedious work, the Income-tax Act has framed the presumptive taxation scheme under sections 44AD, 44ADA, and 44AE. A person adopting the presumptive taxation scheme can declare income at a prescribed rate and, in turn, is relieved from the tedious job of maintenance of books of account and also from getting the accounts audited.

For small taxpayers the Income-tax Act has framed two presumptive taxation schemes as given

below:

1) The presumptive taxation scheme of section 44AD.

2) The presumptive taxation scheme of section 44ADA.

3) The presumptive taxation scheme of section 44AE.

Presumptive Taxation Scheme of Section 44AD

The presumptive taxation scheme of section 44AD is designed to give relief to small taxpayers engaged in any business (except the business of plying, hiring, or leasing of goods carriages referred to in section 44AE). The presumptive taxation scheme of section 44AD can be adopted by the following persons:

1) Resident Individual

2) Resident Hindu Undivided Family

3) Resident Partnership Firm (not Limited Liability Partnership Firm)

In other words, the scheme cannot be adopted by a non-resident and by any person other than an individual, a HUF, or a partnership firm (not a Limited Liability Partnership Firm). This scheme cannot be adopted by a person who has made any claim towards deductions under section 10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant year.

Eligible persons who can take advantage of the presumptive taxation scheme of section 44ADA

A person resident in India engaged in the following professions can take advantage of the presumptive taxation scheme of section 44ADA:-

1) Legal

2) Medical

 3) Engineering or architectural

4) Accountancy

5) Technical consultancy

 6) Interior decoration

7) Any other profession as notified by CBDT


The Finance Act, 2021 has amended provisions of section 44ADA to define eligible assessee. W.e.f. In the assessment Year 2021-22, the benefit of section 44ADA is eligible only in the case of an assessee who is an: a) Individual; and b) a Partnership firm other than a Limited Liability Partnership as defined under clause (n) of sub-section (1) of section 2 of Limited Liability Partnership Act, 2008.

Manner of computation of taxable income in case of a person adopting the presumptive taxation scheme of section 44ADA

In case of a person adopting the provisions of section 44ADA, income will be computed on a presumptive basis, i.e. @ 50% of the total gross receipts of the profession. However, such a person can declare income higher than 50%. In other words, in the case of a person adopting the provisions of section 44ADA, income will not be computed in the normal manner but will be computed at @50% of the gross receipts.


Created & Posted By Ravi Kumar
CA Article at TAXAJ

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