Small Business can claim benefit of Section 44AD Presumptive Income Scheme

As per Section 44AD

For small proprietorship and partnership business

  • There is no need to maintain books of accounts and get accounts audited by CA
  • They can straight away show 8% of cash turnover as Profit and pay Income tax on it

           (Note- For Amt received directly in bank ,we have to take 6% as Profit instead of 8%)

Note:- 8%/6%  is Minimum Profit to be shown, Assesses can show more than 8% profit also

 

What if assess show less than 8%/6% profit or loss?  

It is not allowed as per Section 44AD

He has to compulsorily gets accounts audited and pay tax on it.


Note:-

This Scheme is applicable for Small business whose turnover is upto 2 crore

This scheme only for Proprietorship and Partnership who are Resident(It is not applicable to Companies)

 


Section 44AD Scheme

If Turnover of Business upto 2 Crore,then

  • 8 % of Turnover is Profit for Cash Transactions
  • 6% of Turnover is Profit for Other Transactions
  • No need to make books of accounts
  • No need to do Audit

If Turnover of Business more than 2 Crore,then

  • Proper Books of Accounts and Audit is Compulsory

 

Example 1

Suppose a person has turnover of 20 lacs (15 lac in cash & 5 lac in bank)

What is his business Income How much Income tax he is payable by him

Answer

Suppose a person has turnover of 20 lacs.jpg

 

Example 2

Suppose a person has turnover of 20 lacs (15 lac in cash & 5 lac in bank)

Can person show his Income to be 350000

Answer

Yes, 8%, 6% is the Minimum Tax

He can show more than 8%, 6% also

PARTICULARS AMT
TURNOVER 2000000
   
PROFIT AND GAIN OF BUSINESS AND PROFESSION 350000
(MINIMUM 8%, 6% OF TURNOVER)  
   
GROSS TOTAL INCOME 350000
TAX 5000
REBATE 2500
NET TAX 2500
CESS 100
TAX+ CESS 2600

 

Example 3

Suppose a person has turnover of 20 lacs (15 lac in cash & 5 lac in bank)

Person Claims that he has actually made a profit of only 50000

Can he show this profit in return?

Answer

He has to show Minimum Profit of 1500000(1500000 x 8% + 500000*6%)

If he claims that his profit is less than 150000,he has to maintain proper books of account and get accounts audited by CA

 

Example 4

Suppose a person has turnover of 20 lacs (15 lac in cash & 5 lac in bank

Person Claims that he has actually made a loss of 30000

Can he show this loss in return?

Answer

He has to show Minimum Profit of 1500000(1500000 x 8%+500000*6%)

If he claims that his profit is less than 150000 or he suffers a loss,he has to maintain proper books of account and get accounts audited by CA

 

Example 5

What is the PGBP Income of a proprietorship (Individual) as per Section 44AD in following cases ?

Particulars Case 1 Case 2 Case 3 Case 4
SALES (80% cash, 20% Bank) 1000000 5000000 8000000 25000000
Less        
Expenses 800000 4800000 8100000 9000000
Profit/loss 200000 200000 -100000 16000000

Answer

Particulars Case 1 Case 2 Case 3 Case 4
Turnover 1000000 5000000 8000000 25000000
Cash 800000 4000000 6400000 20000000
Bank 200000 1000000 1600000 5000000
Minimum profit 8% (Cash turnover *8%) 64000 320000 512000 1600000
Minimum profit 6% (Bank turnover *6%) 12000 60000 96000 300000
Total Profit Minimum Profit 76000 380000 608000 1900000

 

Particulars Case 1 Case 2 Case 3 Case 4
TURNOVER 1000000 5000000 8000000 25000000
         
PROFIT AND GAIN OF BUSINESS AND PROFESSION 76000 380000 608000 Not Applicable
(MINIMUM 8% OF TURNOVER)        
         
GROSS TOTAL INCOME 76000 380000 608000  
TAX 0 6500 34100  
REBATE 0 0 0  
NET TAX 0 6500 34100  
CESS 4% 0 260 1364  
TAX+ CESS 0 6760 35464  

In Case 4,person has to compulsorily maintain books of accounts and get accounts audited,he cannot claim Section 44AD

Note:-

Also in Case 3, if person wants to show loss, he also has to compulsorily maintain books of accounts and get accounts audited,he cannot claim Section 44AD

  1. Practical Income Tax
  2. Income Tax for Small Business

About the Author

CA Maninder Singh's photo - Expert in Practical Accounts, Taxation and Efiling
CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 10 years. He also provides Accounts Tax GST Training in Delhi and Pune.