Section 44AD of income tax act provides an option to businessmen to assess income as 8% of the turnover on presumptive basis. This is applicable to businesses with turnover of less than rs. 1 crore. This limit is raised to Rs. 2 crore from financial year 2016-17.
Similar section is introduced for professionals from financial year 2016-17 – Section 44ADA. Under this section professionals such as legal, medical, engineering, architect, accountancy, technical consultancy, interior decoration or any of the profession as given in section 44AB are allowed to presume 50% of the gross receipts as net profit. This is applicable only to professional whose gross total receipts does not exceed rs. 50 lakhs rupees.
The scheme is applicable to resident assessee who is an individual, Hindu Undivided Family (HUF) or partnership firm but not Limited Liability Partnership (LLP) and company.
In case an eligible assessee carrying on the eligible profession, the profits and gains of such profession is deemed to be 50% of the gross receipts from such profession. However, the assessee can claim higher profits.
However an assessee can claim profits to be lower than 50% by maintaining books of account as mentioned in section 44AA and gets them audited as per section 44AB. If the total income of asseessee (i.e 50% of gross receipts plus all other incomes) doesn’t exceed the maximum amount not chargeable to tax, then he is not required to maintain accounts and get them audited.
Deductions from deemed profit :-
No deduction of Section 30 to 38 (including unabsorbed depreciation) is allowed from such deemed profit.
Where the eligible assessee is a partnership firm, salary and interest to partners subject to section 40(b) shall be deducted from such deemed profit.
WDV of depreciable assets:-
The written down value of any asset of an eligible profession shall be deemed to have been calculated as if the eligible assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant years.
The assessee is also not required to maintain books of account under section 44AA if he files return under section 44ADA.