Check Features & Applications of Section 44AD

Filing income tax is an important task that every individual has to do at the end of the financial year. When coupled with GST compliance, the business would only engage in getting its business compliance done.

This is painful, especially for a small business that is low on its resources. To ease this pain, the Government of India made a special provision to provide tax relief for certain professions under Section 44AD.

Calculation of the taxation is always done on the profit earned by the business and a certain percentage of the profits will be given to the Government as Income Tax.

There are some professions where the calculation of the tax is done using the Presumptive Taxation method. In this method, the profit of a business is presumed to be a certain percentage of the turnover of the business.

This is done by Section 44D of the Income Tax Act, 196. In this article, we will discuss what is Section 44D, the features of Section 44D, the application, etc.

Calculation of the taxation as per the Section 44D of the Income Tax Act

Particulars	Section applicable	Presumed Profits (as a percentage of Turnover)
Business	Section 44AD	8%
Profession	Section 44ADA	50%

What is Section 44AD of the Income Tax Act?

Filing income tax is a tedious task and requires a lot of time and effort. If you choose to hire a professional for this then the fees charged by them are a lot.

For small businesses keeping up with this compliance can be challenging, hence, under section 44D of the Income Tax Act, the government has provided some relief on the compliance, and a presumable tax is charged.

This gives small businesses relief from maintaining their Account books and helps them in keeping their compliance part fulfilled as well. But some businesses are not allowed for taxation under this section, which is as follows-

• Architectural
• Accountancy
• Medical
• Engineering
• Technical consultancy
• Interior decoration

Who is Eligible for Section 44AD?

Any residents in India who are Individuals, Partnership & HUF can claim taxation under Section 44AD. Since the business term is used for taxation, therefore, no professional will be allowed to claim as per the Section 44AD of the Income Tax Act. Businesses of plying, hiring, or leasing goods, agency business, and businesses earning income from commission or brokerage are also not allowed to fortake section 44AD for Income Tax Calculation.

Opting out of the Section 44AD of the Income Tax Act

Section 44AD is a voluntary section that you can avail for the calculation of your Income Tax Act. so, you have the flexibility to opt in or out of this section, however, if you decide to opt out of this section 44AD then you cannot avail of this section for at least 5 years.

Additional Terms on Section 44AD

The following are the additional terms on which section 44AD will be applicable-

• If the person is engaged in more than 1 business then the total turnover of all the businesses will be considered for implementing section 44AD.
• If the person is involved in both business and profession then both business and profession will be calculated separately.

What is Section 44ADA of the Income Tax Act?

Section 44ADA applies to all professionals who are working in various industries like legal, medical, engineering, etc. If you opt for this section for the calculation of your Income Tax then your taxation will be calculated at 50% of the income presumably. The total income of the professional must not exceed Rs.50 Lakhs per year.

The following are the professionals who can make use of the section-

• Legal
• Medical
• Engineering
• Architectural Profession
• Profession of Accountancy
• Technical Consultancy
• Interior Decoration

Opting out of the Section 44ADA of the Income Tax Act

The professionals have the flexibility of opting in and out from Section 44ADA without any limit of 5 years.

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