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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
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
