44AD vs 44ADA: Turnover Is Not the Only Test! Know the Rules Before You Opt.

44AD vs 44ADA: Turnover Is Not the Only Test! Know the Rules Before You Opt.

A question I frequently hear from business owners and professionals:

“My turnover is below ₹3 Crore, so I can automatically opt for 44AD, right?”

Not necessarily!

Before choosing presumptive taxation, you first need to check what you do, who you are, and whether your activity is eligible.

Section 44AD – Eligible Business

·       Generally applicable to Resident Individuals, HUFs and Partnership Firms (other than LLPs) carrying on eligible business.

·       Presumptive income:
• 8% of turnover/gross receipts
• 6% on qualifying receipts received through prescribed banking/electronic modes

·       Limit: ₹2 Crore, enhanced to ₹3 Crore where cash receipts do not exceed 5% of total receipts.

·       Not available for:
• Specified professions covered under 44AA(1)
• Commission or brokerage income
• Agency business
• Goods carriage business covered under 44AE

Section 44ADA – Specified Profession

·       Applicable to Resident Individuals and Partnership Firms (other than LLPs) engaged in specified professions such as CA, Lawyer, Doctor, Engineer, Architect, Technical Consultant, Interior Decorator, etc.

·       Presumptive income: 50% of gross professional receipts

·       Limit: ₹50 Lakh, enhanced to ₹75 Lakh where cash receipts do not exceed 5%.

Important: Think Before You Opt!

·       44AD has a 5-year consequence.

If you opt out of 44AD in the prescribed manner, you cannot opt for 44AD again for the next 5 assessment years. In such cases, books of accounts and tax audit may also become applicable, subject to the conditions of the Act.

·       44ADA does not have a similar 5-year lock-in.

However, if a professional declares income below 50% of gross receipts, and the prescribed conditions are satisfied, books and tax audit requirements can arise.

One more thing people often misunderstand:

·       6%, 8% or 50% is NOT the tax rate. It is the presumptive income.

·       The actual income tax is calculated on your total taxable income at the applicable tax rates.

Any questions on 44AD or 44ADA? Drop them in the comments.

Disclaimer: This post is for general awareness and educational purposes only. Tax provisions may vary based on individual circumstances and applicable laws. Please consult your Chartered Accountant before making any tax decision.

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