Filing the Companies Income Tax Return under Section 44AD is a streamlined process designed to simplify tax compliance for small businesses. Section 44AD, under the Income Tax Act, provides a presumptive taxation scheme that allows eligible businesses to declare their income at a prescribed rate, reducing the burden of maintaining detailed accounts and undergoing audits. This guide outlines the eligibility criteria, income computation, and step-by-step procedure to file the return using Form ITR-4, ensuring compliance with the tax regulations while leveraging the benefits of this simplified scheme.

To file the Companies Income Tax Return under Section 44AD, follow these detailed steps.

Eligibility Verification

Ensure the company’s eligibility to file under Section 44AD. This section generally applies to individuals, Hindu Undivided Families (HUFs), and partnership firms (excluding LLPs) engaged in any business except.

a. Businesses involved in plying, hiring, or leasing goods carriages as referred to in Section 44AE.
b. Agency businesses.
c. Businesses earning income in the nature of commission or brokerage.
d. Businesses with total turnover or gross receipts exceeding ₹2 crores in a financial year.

Income Computation

Under Section 44AD, the presumptive income is calculated as 8% of the total turnover or gross receipts of the business for the financial year. If the turnover or gross receipts are received through digital transactions, the presumptive income can be declared at 6%.

Filing Form ITR-4

Use Form ITR-4 (Sugam) for filing the income tax return. This form is designed for individuals, HUFs, and firms opting for the presumptive taxation scheme under Sections 44AD, 44ADA, and 44AE.

Required Details in ITR-4

a. General Information: Include basic details such as name, PAN, address, and contact information.
b. Gross Turnover or Receipts: Declare the total turnover or gross receipts from the business.
c. Presumptive Income: Compute the income based on the prescribed rate (8% or 6%).
d. Bank Details: Provide details of all bank accounts held during the financial year.
e. Verification: Ensure the return is verified by the authorized person.

Books of Accounts and Audit

There is no requirement to maintain detailed books of accounts under Section 44AD if income is declared at the presumptive rate. Additionally, no audit is required under Section 44AB if income is declared under Section 44AD.

Advance Tax Payment

For those opting for the presumptive taxation scheme under Section 44AD, the entire amount of advance tax must be paid by 15th March of the financial year. Failure to pay advance tax by this date will attract interest under Section 234C.

Filing the Return

a. Visit the Income Tax e-Filing website.
b. Log in using your PAN and password.
c. Select “File Income Tax Return” and choose the relevant assessment year.
d. Select the applicable ITR form (ITR-4) and complete the required details.
e. Submit the form and e-verify the return using methods such as Aadhaar OTP, net banking, or EVC (Electronic Verification Code).

Document and Record Maintenance

While maintaining detailed books of accounts is not mandatory, it is advisable to keep records of the turnover, receipts, bank statements, and payment receipts for verification purposes.

Deemed profit is a concept in taxation where certain income is presumed or deemed to be the profit of a taxpayer, regardless of the actual profit earned. This concept is often used to simplify tax compliance, particularly for small businesses and certain types of transactions. Deemed profit provisions are specified in tax laws to minimize the administrative burden of detailed bookkeeping and to ensure a minimum level of income is reported for tax purposes.

Deemed Profit in the Context of Section 44AD

Presumptive Income Rate.

For eligible businesses, the income is deemed to be 8% of the total turnover or gross receipts for the financial year. If the turnover or gross receipts are received through digital transactions, the deemed profit is reduced to 6%.

No Need for Detailed Books of Accounts

Taxpayers opting for Section 44AD are not required to maintain detailed books of accounts as specified under Section 44AA of the Income Tax Act. This reduces the administrative burden.

No Requirement for Audit

Taxpayers under this scheme are also exempt from getting their accounts audited under Section 44AB, provided they declare income at the prescribed rates.

Comprehensive Inclusions

The deemed profit rate of 8% or 6% is considered to include all deductions under sections 30 to 38, which means no further business expenses can be claimed separately.

Other Examples of Deemed Profit.

Section 44AE

For taxpayers engaged in the business of plying, hiring, or leasing goods carriages, deemed profit is calculated based on a specified amount per vehicle per month.

Section 44ADA

Professionals like doctors, lawyers, and architects with gross receipts up to Rs. 50 lakhs can opt for a presumptive taxation scheme where 50% of the gross receipts are deemed to be the profit.

Capital Gains

In certain cases, the Income Tax Act deems the consideration received on the transfer of capital assets to be higher than the actual consideration received if it is below the stamp duty value (Section 50C).

Benefits of Deemed Profit Schemes

Simplified Compliance

Reduces the need for maintaining detailed accounts and audits, simplifying tax compliance for small taxpayers.

Certainty in Taxation

Provides certainty regarding the amount of income to be declared and the tax liability, reducing disputes with tax authorities.

Administrative Efficiency

Reduces the administrative burden for both taxpayers and the tax department, allowing for more efficient tax administration.

Illustrative Example
Mr. A, a resident individual, runs a small retail business. His total turnover for the financial year 2024-25 is Rs. 1.5 crore.

Calculation under Section 44AD

Presumptive Income @ 8% = Rs. 12,00,000.
If 60% of the turnover is received through banking channels.
Income on Rs. 90,00,000 (received digitally) @ 6% = Rs. 5,40,000.
Income on Rs. 60,00,000 (received in cash) @ 8% = Rs. 4,80,000.
Total Income = Rs. 10,20,000.

Conclusion

Deemed profit provisions, such as those under Section 44AD, are designed to simplify the tax filing process and ensure a minimum level of income is reported for taxation. These provisions are particularly beneficial for small businesses and professionals, as they reduce compliance costs and provide certainty in tax matters. By opting for presumptive taxation schemes, taxpayers can focus more on their business operations and less on the complexities of tax compliance.

Section 44AD of the Income Tax Act is a presumptive taxation scheme designed to simplify the tax filing process for small taxpayers. This section allows eligible taxpayers to declare income as a percentage of their turnover or gross receipts, thereby reducing the burden of maintaining detailed books of accounts.

Basic Concepts.

Who can opt for Section 44AD?

• Resident Individuals.
• Hindu Undivided Families (HUFs).
• Partnership firms (excluding LLPs).

Note: It is not applicable to Limited Liability Partnerships (LLPs), companies, and certain professionals specified under section 44AA(1).

Turnover Limit

The gross receipts or turnover should not exceed Rs. 2 crore in a financial year.

Excluded Businesses.

The scheme does not apply to

• Businesses engaged in plying, hiring, or leasing goods carriages (covered under section 44AE).
• Persons carrying on professions as specified under section 44AA(1).
• Businesses involved in agency business or earning income in the nature of commission or brokerage.
• Presumptive Income:
• Under this scheme, the income is presumed to be 8% of the turnover or gross receipts. For payments received digitally or through banking channels, the presumptive rate is reduced to 6%.

Maintenance of Books and Audit.

Taxpayers opting for Section 44AD are exempt from maintaining detailed books of accounts as required under Section 44AA.
They are also exempt from getting their accounts audited under section 44AB, provided they continue to declare income as per the presumptive scheme.

Deductions and Expenses.

The presumptive income calculated under Section 44AD is considered to have included all deductions under Sections 30 to 38. Therefore, no further expenses or deductions are allowed from the presumptive income.

Advance Tax.

Taxpayers opting for the presumptive scheme under Section 44AD are required to pay the entire amount of advance tax by the 15th of March of the financial year.

Restriction on Carry Forward of Losses.

Losses related to the business under Section 44AD cannot be carried forward to the next year.

Five-Year Restriction.

If a taxpayer opts for the presumptive taxation scheme under Section 44AD, they must continue to do so for the next five consecutive years. If they opt out of the scheme before the completion of five years, they will be ineligible to opt for the scheme for the subsequent five years.

Filing the Income Tax Return

ITR Form

• Taxpayers opting for Section 44AD need to file their income tax returns using ITR-4 (Sugam).
• Details to be Provided:
• Business details such as name, nature, and address.
• Total turnover or gross receipts.
• The presumptive income is calculated at 8% or 6%, as applicable.

Illustrative Example

Mr. A, a resident individual, runs a small retail business. His total turnover for the financial year 2024-25 is Rs. 1.5 crore.

Calculation under Section 44AD

Presumptive Income @ 8% = Rs. 12,00,000.
If 60% of the turnover is received through banking channels
Income on Rs. 90,00,000 (received digitally) @ 6% = Rs. 5,40,000.
Income on Rs. 60,00,000 (received in cash) @ 8% = Rs. 4,80,000.
Total Income = Rs. 10,20,000.

Comparison with Regular Provisions

Under regular provisions, Mr. A would need to maintain books of accounts, report actual income, claim actual business expenses, and possibly get his accounts audited if the turnover exceeds Rs. 1 crore. Opting for Section 44AD simplifies the compliance burden significantly.

Important Considerations

Applicability of Other Sections

While Section 44AD provides a simplified method of calculating income, other provisions of the Income Tax Act, such as TDS, advance tax, and provisions relating to the set-off and carry forward of losses, still apply.

Record-Keeping

Though detailed books are not required, it is advisable to keep basic records of turnover or gross receipts to substantiate the income declared under Section 44AD.

GST Compliance

Businesses opting for Section 44AD must also ensure compliance with GST laws, as they are not exempt from GST registration and filings.

Conclusion

Section 44AD of the Income Tax Act offers a simplified taxation process for small businesses by allowing them to declare income based on a percentage of their turnover. This reduces the need for maintaining detailed accounts and undergoing audits, thus easing the compliance burden. However, taxpayers must carefully assess their eligibility and the implications of opting for this scheme to ensure full compliance with all applicable tax laws.

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