How is Section 44 AD beneficial to taxpayers, and should you choose this?

The Income Tax Department has brought in a provision of Section 44AD to provide relief to small taxpayers and low turnover taxpayers. Under this section, you will not have to create and maintain your book of accounts, and you will not have to conduct your audit. You will have to pay tax on 8% or 6% of your estimated turnover as your income.

Who is eligible to take advantage of Section 44AD?

This section can be availed only by an individual (proprietor), HUF, or partnership firm. The company and LLP will not get any benefit from this section. This section is only for a person associated with the business. If you are a doctor, lawyer, chartered accountant, or any other professional, you will benefit from Section 44ADA. Even if you are a commission or brokerage agent, you will not get the benefit of this section.

What will be the turnover limit in Section 44AD, and who will be accepted by the small taxpayers?

Only small taxpayers, i.e., those whose turnover is less than two crores in a year can benefit from this section. If your turnover exceeds two crores during the year, you cannot take advantage of this stream.

How will the income on turnover be calculated?

A certain percentage of your turnover will be considered as your income. At present, 8% is applicable to cash turnover and 6% on digital turnover, i.e., turnover through banking. For example, if you have an annual turnover of 50 lakhs and cash turnover is 40 lakhs, and the turnover through banking is ten lakhs, then 8% above 40 lakhs and 6% above ten lakhs will get the estimated income.

40 Lakh x 8% = 3, 20,000/-

 10 Lakh x 6% = 60,000/-

 Total Income = 3, 80,000 /-

Thus, assuming your total income to be 3, 80,000, the tax liability will come out on it.

Note:- If your actual income is more than this, then you will have to show your actual income, and if your actual income is less than this, then you have two ways:-

1.      Get your audit done and show your actual income. or else

2.      At least 6% or 8% of your income should be taxed.

 

Will there be any discount on expenses?

No, there will be no discount on expenses. If you consider this estimated 8% or 6% share as your income, you will not be provided any discount. Suppose there are business expenses of yours, i.e., purchases, labor expenses, salary, worn-out expenses, bank interest, or any other expenses. In that case, it will be assumed that all those expenses have been provided to you and you will not get any further discount on that.

5-year lock-in period

It is important to note that once you take advantage of this section, you will have to file your return in this section for five years. Also, even if you don't take advantage of this section once, you will not be able to take advantage of it for five years. Either you show your income in Section 44 AD for five years, or you show income without it for five years. One year 44AD and the next year the simple rule, you can't take advantage of.

Is it beneficial for you?

Yes, Section 44AD is very beneficial for you because you do not have to maintain your account; only at the end of the year do you have to pay tax on some part of your turnover by declaring it as income. You can avoid various types of questions answered by the Income Tax Department, and at the same time, you do not have to conduct an audit. Only a small return has to be filed at the end of the year, and it is similar to the composition scheme of sales tax. If you are a proprietor, a HUF, then your TDS deducting responsibility also ends.

Will other incomes be taxed separately?

Other than your business, other than yours, i.e., the income of interest or income from rent or a gift from someone or any capital gain. All of them will have to be taxed separately, and they will not get any exemption in this section.

Exemption of tax slab and Section 80C 

Under this section, if you text, you will get the benefit of income tax flap and the exemption of Rs 1.5 lakh under 80C separately, as well as if you are also eligible for a rebate of Rs 5,000/2,500 under Section 87A, the same will be granted to you separately. If you make any big transaction, you must ask your income tax advisor. There may be some errors in this blog, and if it harms you, it will not be our responsibility. These blogs are designed only for your information.