Presumptive Taxation Scheme under Section 44AD of the Income Tax Act. A compressive guide by udaipur Chartered Accountant’s explains eligibility, key amendments, and the simplified taxation process for small businesses in India.
Introduction:
In the complex landscape of Indian taxation, small businesses often find it cumbersome to maintain comprehensive records, manage audits, and comply with tax regulations. The Indian government, in its continuous efforts to support small taxpayers and reduce their compliance burden, introduced Section 44AD of the Income Tax Act, which offers a simplified method of taxation known as the Presumptive Taxation Scheme. This scheme allows businesses to calculate their taxable income at a fixed percentage of their turnover, thereby eliminating the need for regular bookkeeping and audits.
Section 44AD is a boon for small business owners who fall under the prescribed turnover limit. This scheme offers substantial relief by reducing administrative costs and simplifying tax procedures. In this blog, we will explore the provisions of Section 44AD in detail, its eligibility criteria, recent amendments, and how businesses can benefit from this scheme.
What is Section 44AD?
Section 44AD of the Income Tax Act, 1961, provides a presumptive taxation scheme for small businesses in India. Under this section, taxpayers are allowed to declare a fixed percentage of their total turnover or gross receipts as their taxable income. This percentage ranges between 6% to 8% depending on the nature of the business. The beauty of this scheme is that it offers a straightforward method to calculate income, removing the need for detailed financial statements or an audit.
Key Provisions of Section 44AD:
Amendment to Section 44AD and Section 44ADA:
Recent amendments to the Income Tax Act have raised the limits for businesses and professionals eligible for the presumptive taxation scheme under Section 44AD and Section 44ADA. These amendments have been made to accommodate the growth of small businesses and professional firms. The key changes are:
Category | Previous Limit | Revised Limit |
Section 44AD: Small Business | Rs 2 Crore | Rs 3 Crore |
Section 44ADA: Professionals | Rs 50 Lakh | Rs 75 Lakh |
Condition for Revised Limit:
The revised limit is available only if 95% of the receipts are made through digital modes such as bank transfers, debit/credit cards, and digital wallets. This condition is introduced to promote a cashless economy and enhance transparency in transactions.
How Does Section 44AD Benefit Small Businesses?
Eligibility Criteria for Section 44AD:
To qualify for the presumptive taxation scheme under Section 44AD, the following conditions must be met:
How to Calculate Taxable Income under Section 44AD:
To calculate taxable income under Section 44AD, businesses need to follow these simple steps:
Conclusion:
Section 44AD of the Income Tax Act offers a simple and convenient taxation method for small businesses with turnover under the prescribed limits. The presumptive taxation scheme eliminates the need for maintaining detailed books of accounts, simplifies tax filing, and reduces the administrative burden. With recent amendments increasing the turnover limits, more businesses are now eligible to benefit from this scheme, provided they comply with the requirement of 95% digital receipts.
For small business owners and professionals, Section 44AD is an excellent opportunity to streamline their tax compliance process and minimize the burden of maintaining detailed financial records. If you are a small business owner, it is essential to evaluate whether Section 44AD suits your business profile and take advantage of its benefits.
For further clarification or personalized assistance, it is advisable to consult a udaipur Chartered Accountant’s to ensure that your business is complying with the latest amendments and reaping the full benefits of the presumptive taxation scheme.