FAQs on Presumptive Taxation for Businessmen – Section 44AD

Frequently Asked Questions (FAQs) on Presumptive Taxation for Businessmen w.r.t. Proposed changes in Budget 2023 in Section 44AD of Income Tax Act, 1961

What is Section 44AD of Income Tax Act?

1) Section 44AD is based on Computation of Income on Estimated Basis.

2) Section 44AD applies to Assesses who are resident individuals, Hindu Undivided Family, Partnership firm and has not claimed deduction u/s 10A, 10B, 10AA, or under chapter VI A in respect of certain incomes. 

3) Taxpayers engaged in all businesses except business of plying, leasing, or hiring trucks. 

4) The scheme is applicable to all assesses whose gross receipts from the above-mentioned business do not exceed Rupees 2 crore.

If Section 44AD is applicable then: 

1) Income is to be estimated @8% of the gross receipts. 

2) The limit has been reduced to 6% in respect of the amount of Total turnover or Gross receipts made by means of account payee cheque, draft, electronic means during the previous year and the payment is received on or before the due date of filing the return of income. Payment should be done by bank or such other electronic mode as may be prescribed.

 3) A taxpayer can voluntarily declare a higher income in his return. 

4) All deduction shall be deemed to have been already allowed.

Proposed changes in Budget 2023 in Section 44AD 

In budget 2023, under Section 44AD the threshold limit has been increased to Rupees 3 crores for eligible business where amount or the aggregate amounts received during the previous year through bank or such other electronic mode is 95% of the Total Turnover or Gross receipts. 

FAQs on Section 44AD of Income Tax Act, 1961 

Q.1 Section 44AD applies to which Assesses?

Ans: Section 44AD applies to Resident individuals and Hindu undivided family and partnership firm. 

Q.2 What are the deductions that has to be foregone by the assesses to get Section 44AD? 

Ans: Assesses has to foregone the deductions u/s 10A, 10B, 10AA and under chapter VI A in respect of certain incomes. 

Q.3 What are the businesses the assesses need to engage to get the benefit of Section 44AD? 

Ans: The Assesses engaged in all businesses except business of plying, leasing,  or hiring trucks.

 Q.4 What is the Threshold limit of the scheme Section 44AD? 

Ans: The scheme is applicable to those assesses whose gross receipts from the eligible business does not exceed 2 crore rupees. 

Q.5 Is Section 44AD based on Presumptive basis? 

Ans: Yes, Section 44AD is based on Presumptive basis. 

Q.6 What is the estimated rate of income under Section 44AD? 

Ans: The estimated rate of income under section 44AD is 8% of the gross receipts however the limit is reduced to 6% if the amount of total turnover or gross receipts made by means of account payee cheque, draft, electronic means during the previous year and the payment is received on or before the due date of filing the return of income. 

Q.7 What are the mode through which the payment should be done? 

Ans: The payment should be done by bank or such other electronic mode as may be prescribed. 

Q.8 What are the Prescribed mode of electronic means for Section 44AD? 

Ans: The prescribed electronic mode includes Credit card , debit card, net banking, Immediate payment service (IMPS), Unified payment Interface (UPI), Real Time Gross Settlement (RTGS), National Electronic Fund Transfer (NEFT), and BHIM ( Bharat Interface For Money) and Aadhar Pay. 

Q.9 Can a taxpayer voluntarily opting for Section 44AD declare a higher income in his return? 

Ans: Yes, a taxpayer can voluntarily declare a higher income in his return. 

Q.10 What are the changes in Budget 2023 in Section 44AD? 

Ans: The Threshold limit has been increased to Rupees 3 crores for eligible business where amount or the aggregate amounts received during the previous year through bank or such other electronic mode is 95% of the Total Turnover or Gross receipts.