FAQs
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What is the meaning of presumptive taxation scheme?

​​​As per sections 44AA of the Income-tax Act, 1961, a person engaged in business or profession is required to maintain regular books of account under certain circumstances. To give relief to small taxpayers from this tedious work, the Income-tax Act has framed the presumptive taxation scheme under sections 44AD, sections 44ADA, sections 44AE., Section 44BB and Section 44BBB

A person adopting the presumptive taxation scheme can declare income at a prescribed rate and, in turn, is relieved from tedious job of maintenance of books of account.

​​For small taxpayers, the Income-tax Act, 1961 has framed presumptive taxation schemes as given below:
•        Section 44AD        :  Computation of income on estimated basis in the case of taxpayers [being a resident individual, resident Hindu undivided family or resident partnership firm (not being a limited liability firm] engaged in certain business subject to certain conditions.

•        Section 44ADA        :  Computation of professional income on estimated basis for assessee being a resident in India and engaged in a profession referred to in section 44AA(1) subject to certain conditions.

•        Section 44AE        : Computation of income on estimated basis in the case of taxpayers (being an Individual, HUF, AOP, BOI, Firm, Company, Co-operative society or any other person may be resident or non-resident) engaged in the business of plying, leasing or hiring goods carriages, subject to certain conditions.

•        Section 44B        : Taxation of shipping profits derived by a person being a non-resident in India, subject to certain conditions.

•        Section 44BB        :  Computation of taxable income of a person being a non-resident (may be an India citizen or a foreign citizen) from activities connected with exploration of mineral oils, subject to certain conditions.

•        Section 44BBA        :  Computation of income in respect of foreign airlines, subject to certain conditions.

•        Section 44BBB        :  Computation of profits and gains of foreign companies engaged in the business of civil construction, subject to certain conditions.

Who is eligible to take advantage of the presumptive taxation scheme of section 44AD?
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The presumptive taxation scheme of section 44AD can be adopted by 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 Limited Liability Partnership Firm).

Further, 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. ​

Which businesses are not eligible for presumptive taxation scheme?
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The scheme of   section 44AD is designed to give relief to small taxpayers engaged in any business, except the following businesses:

  • Business of plying, hiring or leasing goods carriages referred to in sections 44AE.
  • A person who is carrying on any agency business.
  • A person who is earning income in the nature of commission or brokerage
  • Any business whose total turnover or gross receipts exceeds two crore rupees.​


  • Apart from above discussed businesses, a person carrying on profession as referred to in section 44AA(1) ​is not eligible for presumptive taxation scheme under section 44AD. ​

Can an insurance agent adopt the presumptive taxation scheme of section 44AD?

​​​​​​​A person who is earning income in the nature of commission or brokerage cannot adopt the presumptive taxation scheme of section 44AD​. Insurance agents earn income by way of commission and, hence, they cannot adopt the presumptive taxation scheme of section 44AD​.

Can a person engaged in a profession as prescribed under section 44AA(1) adopt the presumptive taxation scheme of section 44AD?

​​​​​​​​​​​A person who is engaged in any profession as prescribed under section 44AA(1)​ cannot adopt the presumptive taxation scheme of section 44AD.​

However, he can opt for presumptive taxation scheme under section 44ADA​ and declare 50% of gross receipts of profession as his presumptive income. Presumptive Scheme under section 44ADA​​ is applicable only for resident assessee whose total gross receipts of profession do not exceed fifty lakh rupees.

Can a person whose total turnover or gross receipts for the year exceed Rs. 2,00,00,000 adopt the presumptive taxation scheme of section 44AD?

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The presumptive taxation scheme of section 44AD can be opted by the eligible per​sons if the total turnover or gross receipts from the business do not exceed the limit prescribed under section 44AB​ (i.e., Rs. 2,00,00,000). In other words, if the total turnover or gross receipt of the business exceeds Rs. 2,00,00,000 then the scheme of section 44AD cannot be adopted. ​

What is the manner of computation of taxable business income under the normal provisions of the Income-tax Law, i.e., in case of a person not adopting the presumptive taxation scheme of section 44AD?

Generally, as per the Income-tax Law, the taxable business income of every person is computed as follows :

Particulars Amount
Turnover or gross receipts from the businessXXXXX
Less : Expenses incurred in relation to earning of the income (XXXXX)
Taxable Business IncomeXXXXX

For the purpose of computing taxable business income in the above manner, the taxpayers have to maintain books of account of the business and income will be computed on the basis of the information revealed in the books of account​.

What is the manner of computation of taxable business income in case of a person adopting the presumptive taxation scheme of section 44AD?

​​In case of a person adopting the provisions of section 44AD, income will be computed on presumptive basis, i.e., @ 8% of the turnover or gross receipts of the eligible business for the year.

Income shall be calculated at rate of 6% in respect of total turnover or gross receipts which is received by an account payee cheque or draft or use of electronic clearing system or through such other electronic mode as may be prescribed​.

In other words, in case of a person adopting the provisions of section 44AD​, income will not be computed in normal manner as discussed in previous FAQ (i.e., Turnover less Expense) but will be computed @ 8%/6% of the turnover.

Income at higher rate, i.e., higher than 8% can be declared if the actual income is higher than 8%. ​

​As per the presumptive taxation scheme of section 44AD, income of a taxpayer will be computed @ 8%/6% of the turnover or gross receipt and from such income can the taxpayer claim any further deductions?

Under the normal provisions of the Income-tax Law, taxable business income will be computed after allowing deduction in respect of expenses which are deductible as per the Income-tax Act and after disallowing expenses which are not deductible as per the Income-tax Act.

In case of a person who is opting for the presumptive taxation scheme of section 44AD, the provisions of allowance/disallowances as provided under the Income-tax Law will not apply and income computed at the presumptive rate of 8%/6% will be the final taxable income of the business covered under the presumptive taxation scheme and no further expenses will be allowed or disallowed. However, the assessee can claim deduction under chapter VI-A.

While computing income as per the provisions of section 44AD, separate deduction on account of depreciation is not available, however, the written down value of any asset used in such business shall be calculated as if depreciation as per section 32​ is claimed and has been actually allowed. ​

​As per the presumptive taxation scheme of section 44AD, income of a taxpayer will be computed @ 8%/6% of the turnover or gross receipt and from such income can the taxpayer claim any further deductions?

​​Under the normal provisions of the Income-tax Law, taxable business income will be computed after allowing deduction in respect of expenses which are deductible as per the Income-tax Act and after disallowing expenses which are not deductible as per the Income-tax Act.

In case of a person who is opting for the presumptive taxation scheme of section 44AD, the provisions of allowance/disallowances as provided under the Income-tax Law will not apply and income computed at the presumptive rate of 8%/6% will be the final taxable income of the business covered under the presumptive taxation scheme and no further expenses will be allowed or disallowed. However, the assessee can claim deduction under chapter VI-A.​

While computing income as per the provisions of section 44AD, separate deduction on account of depreciation is not available, however, the written down value of any asset used in such business shall be calculated as if depreciation as per section 32​ is claimed and has been actually allowed. ​


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