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Section 44AD of Income Tax Act

by Varun Advani | 11 June 2015



Computation of business income under section 44AD is applicable if the taxpayer is a resident individual, resident Hindu undivided family or a resident partnership firm (not being limited liability partnership).


The taxpayer can be engaged in any business (except the businesses mentioned in negative list given below). The annual turnover should not exceed Rs.1 crore. In such a case, income is computed on estimated basis at the rate of 8 per cent of turnover.


The rate of 8 per cent is comprehensive (i.e., no further deduction is allowed under any other section except remuneration and interest to partners). A resident individual/Hindu undivided family opting from the above scheme, can submit return of income in ITR-4S is a simplified form as compared to other forms).


A taxpayer opting for the above scheme of section 44AD shall be exempted from payment of advance tax related to such business and maintenance of books of account.


Negative list-The following persons are not eligible to avail any benefit under section 44AD-

a.       a person carrying on profession as referred to in section 44A(1);

b.      a person earning income in the nature of commission or brokerage;       

c.       a person carrying on any agency business ;or

d.      a person who is in business of plying ,hiring or leasing goods carriages;

e.      The taxpayer who has claimed any deduction under section 10A, 10AA, 10BA, 80HH to 80RRB in the relevant assessment year.


Is it possible to declare higher income? Yes, a taxpayer who is covered by section 44AD can declare higher income.


Is it possible to declare lower income? If the taxpayer wants to declare lower income, he will have to maintain books of accounts .He also cannot submit his return of income in ITR -4S. In that case the return will have to be submitted in ITR-4 or ITR-5. If the lower income so declared by the taxpayer is more than exemption limit, he will have to get his account audited on compulsory basis (and in such a case return will have to be submitted electronically with digital signature).

This section is predominantly used by taxpayers having gains/losses from trading in futures and options.  

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