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Understanding the Presumptive Tax Regime u/s 44AD for eligible Businesses

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• Last Updated on 13 April, 2023

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Table of Contents

• Presumptive taxation regime of Section 44AD of the Act?
• Which assessees are eligible to opt for the scheme under section 44AD?
• Which assessees are barred from availing section 44AD scheme?
• Disqualification incurred by opting out of section 44AD before availing it for 6 consecutive previous years

1. Presumptive taxation regime of Section 44AD of the Act

The objective of section 44AD of the Act is to provide a presumptive income scheme for small taxpayers to lower compliance costs for them and to reduce the administrative burden on the tax machinery.

The following features of section 44AD may be noted:

• In the case of an “eligible assessee” engaged in an “eligible business”, the profits and gains from such business shall be deemed to be 8% of the total turnover or gross receipts (6% in case of turnover or gross receipts realised digitally/through banking channels on or before the due date for filing ITR u/s 139(1) on account of such eligible business.
• It must be noted that ‘eligible assessee’ needs to opt for section 44AD for the entire turnover of his ‘eligible business’ if he opts for section 44AD. He cannot, for instance, opt for section 44AD for only digital turnover portion of his turnover.
• The rate of 8 per cent (6% in case of digital turnover) is comprehensive. All deductions under sections 30 to 38 of the Act including depreciation, will be deemed to have been already allowed and no further deduction will be allowed under these sections. The written down value will be calculated, where necessary, as if depreciation as applicable has been allowed.

[For amendments by Finance Act, 2023 to section 44AD w.e.f. A.Y. 2024-25]

In Oopal Diamond v. ACIT [ 2022] 144 taxmann.com 184 (Mumbai – Trib.), it was held that in view of Task Force Report [See Report of the Task Group for Diamond Sector to make India an “International Trading Hub For Rough Diamonds”, February 2013, published by the Union the Ministry of Commerce and Industry], Net Profit addition for purchases from tainted party is not to exceed 1.5% to 4.5% range in case of diamond manufacturers. The Tribunal held as under:

• Where the assessee was a manufacturer and trader of diamonds and had made purchases from certain parties who were treated as tainted dealers as per information gathered from the search carried out in the entities of Shri Bhawarlal Jain and Group but the sales made out of these purchases were not doubted by the AO, CIT(A) was justified in reducing the 5% net profit addition made by AO in respect of these purchases to 3% as the 3% addition is in line with Benign Assessment Procedure recommended in the report of Task Force for Diamond Sector which recommended Net Profit presumptive margin of 1.5% to 4.5% for diamond manufacturers and 1.5% to 3% for diamond traders.
• We find that the Tribunal has been consistently taking the stand by estimating the profit element on the basis of reliance placed on the aforesaid report of the Task Force. In the instant case, the assessee is engaged in the business of both trading as well as manufacturing of diamonds. Considering the same, the ld. CIT(A) was duly justified in estimating the profit percentage at 3%. In other words, the estimation of profit percentage at 3% by the ld. CIT(A) is just and fair and does not require any interference. Accordingly, ground No. 2 raised by the assessee is dismissed.

The following flowchart explains who can opt for the presumptive taxation scheme under section 44AD.

2. Which assessees are eligible to opt for the scheme under section 44AD?

Assessee should be an “eligible assessee” within the meaning of clause (a) of the Explanation to section 44AD. According to the said clause (a), “eligible assessee” means:

• An individual, HUF or firm
• Who is resident and
• Who has not claimed deduction under sections 10A, 10AA, 10B, 10BA of the Act or deduction under any provisions of Chapter VIA of the Act under the heading “C-Deductions in respect of certain incomes”.

Also, assessee should not be barred from availing the section 44AD Scheme

Where assessee was not carrying on any business independently but was only a partner in a firm, interest and salary received by assessee could not be construed as business income under section 28(v) and accordingly, assessee’s claim of estimating income on presumptive basis under section 44AD with respect to interest and remuneration earned from partnership firm had rightly been denied. [ Anandkumar v. ACIT [2020] 122 taxmann.com 252 (Madras)]

2.1 Section 44AD can be availed only by individuals, HUFs and firms

The benefit of section 44AD can be availed only by resident individuals, Hindu Undivided Families and firms. Section 2(23) of the Act defines “firm” to include Limited Liability Partnerships (LLPs) registered under the Limited Liability Partnership Act, 2008 (LLP Act, 2008). However, clause (a) of the Explanation to section 44AD bars LLPs from availing the benefit of section 44AD. Clause (a) uses the words “but not a “limited liability partnership firm” as defined under clause (n) of sub-section (1) of the Limited Liability Partnership Act, 2008 (6 of 2009)”.

Thus, only general partnership firms within the meaning of Indian Partnership Act, 1932 can avail the benefit of section 44AD. LLPs cannot avail the benefit of section 44AD.

2.2 Non-residents are not eligible assessees and cannot avail benefit of section 44AD

Section 44AD benefit is available only to residents. Non-residents cannot avail section 44AD.

2.3 Not claimed any deduction under Part C of Chapter VIA-A of the Act or under section 10A, 10AA, 10B or 10BA

No deduction is admissible under section 10BA with effect from Assessment Year 2010-11. Likewise, no deduction is admissible under section 10A or 10B with effect from Assessment Year 2012-13. Section 10AA contains “Special provisions in respect of newly established Units in Special Economic Zones”. Part C of Chapter VI-A under the heading “C-Deductions in respect of certain incomes” comprises sections 80HH to 80RRB (both inclusive). Most of these sections in Chapter VIA-C either legally or practically do not apply to small businesses. Many of these sections are past their “sunset clause” date and hence deductions under them are not legally admissible. SUGAM ITR-4 form is prescribed for filing ITRs of assessees who opt for section 44AD. In ITR-4, there is no column for claiming any deduction under Chapter VIA-C.

3. Which assessees are barred from availing section 44AD scheme?

Section 44AD(6) of the Act provides that the provisions of section 44AD shall not apply to:

(i) a person carrying on profession as referred to in sub-section (1) of section 44AA of the Act

(ii) a person earning income in the nature of commission or brokerage

(iii) a person carrying on agency business.

Sub-section (4) of section 44AD provides restrictions against opting in and opting out at will. Sub-section (4) provides that where an eligible assessee declares profit of 8% or more (6% or more in case of digital turnover) in accordance with section 44AD for Assessment Year 2017-18 or any subsequent assessment year, he should declare 8% or more (6% or more in case of digital turnover) for next 5 consecutive assessment years also before opting out of section 44AD by declaring lower than 8% (lower than 6% for digital turnover) for any year. Where assessee opts out in violation of sub-section (4) i.e. before declaring profit of 8% or more (6% or more in case of digital turnover) for 6 consecutive years, he shall be barred from availing section 44AD scheme for next 5 consecutive assessment years.

3.1 Which are the professions referred to in section 44AA(1) [Section 44AD(6)(i)]

A person carrying on a profession referred to in section 44AA(1) of the Act cannot avail section 44AD in respect of either the profession or for that matter in respect of any “eligible business” carried on by him . Under section 44AA(1) of the Act, the following professions have been notified so far:

• Accountancy
• Architectural
• Authorised Representative
• Company Secretary
• Engineering
• Film artists – Art Director (including Assistant Director), Cameraman, Dance Director (including Assistant Dance Director), Dialogue writer, Director (including Assistant Director), Dress Designer, Editor, Lyricist, Music Director (including Assistant Music Director), Screenplay writer, Singer, Story writer
• Interior Decoration
• Information Technology
• Technical Consultancy

The following implications of clause (i) of section 44AD(6) may be noted:

• The exclusion applies not merely to the profession referred to in section 44AA(1) but to the person carrying on such profession.
• This means, for example, if a doctor [a profession referred to in section 44AA(1)] has a business of pharmacy shop as well, it goes without saying that he would not be able to claim section 44AD for his medical practice 1 .
• What is further important is that he would also not be able to opt for presumptive taxation under section 44AD for his pharmacy shop business.
• On the other hand, if his pharmacy shop business is carried on by a partnership firm (not being an LLP), the firm can avail section 44AD in respect of that business as the doctor and firm are distinct ‘persons’ with separate PAN numbers as far as the Income-tax Act, 1961 is concerned.
• The person barred is the person carrying on profession referred to in section 44AA(1) – i.e., the doctor. The firm carrying on pharmacy business is a distinct and separate person and the bar does not apply to the firm.
• Likewise a partnership firm selling law books having a lawyer as a partner is not barred from availing section 44AD since the bar in section 44AD(6) applies to the lawyer and not to the firm which is a separate entity for income-tax purposes.
• If profession carried on is one that is not covered by section 44AA(1) of the Act (e.g. teaching, authorship), the person carrying on the same can avail the presumptive income scheme under section 44AD in respect of that profession and also in respect of any other eligible business.

It must be noted that the activity of a professional doctor/lawyer/architect etc. would still be a profession and not be a business even if it is carried out on a large scale by hiring other doctors/lawyers etc. unless the doctor/lawyer becomes a passive entrepreneur in relation to the services.

In Sunil Chandak v. ITO [2012] 21 taxmann.com 76/136 ITD 324 (Jodh. - Trib.), the Tribunal dealt with this issue in great detail. The ITAT laid down the following propositions:

• Even if a doctor carries out his activities on a large scale by hiring other doctors in his nursing home, his activity will be ‘profession’ and not ‘business’ unless he becomes a passive entrepreneur in relation to services.
• The fact that physicians/doctors have been hired is not relevant.
• What is relevant and crucial is the nature of the services rendered by them (hired doctors), whether facilitative or substantially so, or on independent, standalone basis, or substantially so. It is only in the latter case that the nursing home acquires the character of a business enterprise.
• A lawyer or an architect, say, may keep juniors or even experienced lawyers or architects, to assist him, or to be able to increase the capacity or manage efficiently the volume or range of services, i.e., impact positively the quality and quantum of work/professional output. The same would be essentially a question of size, i.e., make it a law firm or a solicitor firm as against an individual lawyer or solicitor, and not impinge on the character of the services. The question is not even of capital, which again plays a dormant role.
• Where, however, the lawyers employed or hired are specialists in their respective areas of practice, engaged with a view to broaden the horizons of the professional services being offered, the firm, though only a law firm as far as the clients are concerned, its proprietor could be said to be carrying out trade or commerce, inasmuch as his function in relation to those services is only passive, of an entrepreneur, managing the affairs, much in the same manner as a non-professional would.
• A business is characterized by a much higher level of risk in comparison to profession.
• By undertaking to invest capital, entailing financial risk as where it is borrowed at a cost, and arranging for a gamut of services, the promoter assumes a level of business risk not warranted by the exercise of profession, in as much as he is trading or leveraging on the professional ability of those employed or hired to successfully run a particular segment of the business, if not the whole of it, and not merely to act as assistants or facilitators working under a stable, supervised and, thus, controlled, conditions.

If the doctor conducts activities of his nursing home on large scale by hiring other doctors to the extent he becomes a passive entrepreneur, he could no longer be said to be “carrying on a profession” within the meaning of section 44AD(6)(i) or “engaged in a profession” to use the words of section 44ADA. In such a case, the doctor would not be eligible for presumptive scheme under section 44ADA but would be eligible for the presumptive scheme under section 44AD.

Applicability of Presumptive Income Scheme Under Sections 44AD/44ADA to Resident Assessee Engaged in Profession Referred to in Section 44AA(1)

3.2 Whether a person earning commission or brokerage income [Section 44AD(6)(ii)] can avail section 44AD scheme for his other business activities?

A person earning income in the nature of commission or brokerage cannot opt for presumptive taxation under section 44AD not only in respect of his activities giving rise to commission or brokerage income but also in respect of other ‘eligible business’. If an individual is carrying on his commission or brokerage activities in individual proprietary name but is a partner in a firm carrying on ‘eligible business’, the firm is not barred from availing section 44AD as it is a separate entity with separate PAN for tax purposes. It is also important to note that mere earning of commission or brokerage income disqualifies a person from opting for section 44AD even if he has ceased carrying on the activities giving rise to the income and these are results of his past efforts.

4. Disqualification incurred by opting out of section 44AD before availing it for 6 consecutive previous years

Sub-section (4) of section 44AD provides as under:

• Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section.
• Then in any of the next 5 assessment years relevant to the previous year succeeding such previous year, he opts out of section 44AD by declaring profit not in accordance with section 44AD – i.e. he declares profit less than 8% (less than 6% in case of digital turnover) or he declares a loss.

*Conditions apply.

• With effect from assessment year 2017-18, the doctor can opt for presumptive income scheme for his medical practice under section 44ADA.

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8 thoughts on “Understanding the Presumptive Tax Regime u/s 44AD for eligible Businesses”

What if actual profit is more than 8% in case the return is filed under 44AD ?. Should we declare actual profit or 8% as per the law ?.

Ethically yes, actual profit should be declared but practically things may vary on the ground of non-maintenance of books.

As per section 44AD, the assessee should mention 8%/6% of turnover as minimum profit. However, if the actual profit is more than the prescribed % then the assessee can declare actual profit in his income tax return.

Can business of teaching and income from it will be eligible for presumptive taxation u/s 44AD? Thanks for this great article.

If the profession carried on by the assessee is one that is not covered by section 44AA(1) of the Act, the person carrying on the same can avail the presumptive income scheme under section 44AD in respect of that profession and also in respect of any other eligible business.

Can a pilot show their income under section 44AD, since he is not covered under section 44AA and further where it has been written that the actual profit must be shown, can we just simply pay6/8% of the gross receipts?

What is the threshold limit u/S 44AD for Service providers e.g. Manpower Supply, Renting of Machinery etc.?

Any business carried out by the eligible assessees is eligible for Section 44AD if turnover or gross receipts from such business in the financial year does not exceed Rs. 2 crores. However, the limit of Rs. 2 crores shall be increased to Rs. 3 crores if the amount or aggregate of the amount of cash received during the previous year does not exceed 5% of the total turnover or gross receipts of such year.

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Unlocking the Secrets of Presumptive Tax: Exploring Section 44AD

• Post author: Kanakkupillai
• Post published: September 14, 2023
• Post category: Taxation

Last Updated on September 14, 2023 by Kanakkupillai

Presumptive Tax

Navigating taxation is no small feat, especially for small businesses and self-employed individuals striving to balance operations and financial management. In this intricate landscape, the concept of Presumptive Tax under Section 44AD emerges as a guiding light, offering simplicity and relief to those engaged in modest commercial ventures.

Presumptive Tax under Section 44AD

Imagine a tax approach to ease the burden on small businesses and self-employed professionals, allowing them to focus on growth instead of complex calculations. This is precisely what Presumptive Tax under Section 44AD aims to achieve. Section 44AD of the Income Tax Act provides an alternative method for calculating taxable income, simplifying the tax structure for those whose turnovers do not exceed a specified threshold.

Relevance for Small Businesses and Self-Employed Individuals:

Presumptive Tax under Section 44AD is particularly relevant and beneficial for small businesses and self-employed individuals for several reasons:

• Simplicity in Calculation: Keeping meticulous records and calculating intricate tax components can be daunting for many small businesses. With the Presumptive Tax method, they can determine their tax liability based on a predetermined percentage of their turnover, simplifying the entire process.
• Reduced Compliance Burden:  Traditional tax calculations involve extensive documentation and complex accounting practices. Presumptive Tax drastically reduces this compliance burden, allowing entrepreneurs to allocate their time and resources more effectively.
• Focus on Business Growth:  Small businesses often face resource constraints. By eliminating the need for exhaustive accounting, Presumptive Tax frees up valuable time and energy, enabling business owners to concentrate on enhancing their services and expanding their customer base.
• Financial Predictability: Businesses can estimate their tax liability more predictably with a fixed percentage applied to turnover. This assists in better financial planning and allocation of funds for tax payments.
• Reduced Risk of Scrutiny: Since Presumptive Tax offers a simplified method of computation, businesses are less likely to attract the scrutiny that can come with complex tax arrangements.

Understanding Section 44AD

What is section 44ad.

In the symphony of the Income Tax Act, Section 44AD stands as a harmonious alternative for small businesses and self-employed individuals, offering a simplified approach to tax calculation. This provision provides a method of taxation that eases the burdensome complexities of the conventional tax regime. Designed as a beneficial provision, Section 44AD offers eligible taxpayers a reprieve from intricate calculations, allowing them to focus on their core activities while ensuring fair taxation.

Purpose of the Income Tax Act

The primary purpose of Section 44AD is to alleviate the tax compliance burden on certain taxpayers. It acknowledges the challenges faced by small businesses, self-employed professionals, and those with modest turnovers. By providing a presumptive taxation framework, this section aims to promote ease of doing business, stimulate entrepreneurship, and streamline the tax process. It is a testament to the government’s commitment to fostering a more inclusive and simplified tax environment.

Who Can opt for Presumptive Tax under Section 44AD?

Section 44AD extends its accommodating embrace to a specific set of taxpayers. These include:

• Resident Individuals:  Individuals who are residents of India can avail themselves of the benefits of this section.
• Hindu Undivided Families (HUFs):  HUFs, a unique entity in Indian tax law, are also eligible to opt for the presumptive taxation scheme.
• Partnerships (Excluding LLPs):   Partnership firms , except Limited Liability Partnerships (LLPs), can leverage the provisions of Section 44AD.

Types of Businesses Eligible

This provision welcomes a spectrum of businesses within its fold, aiming to accommodate diverse economic activities. Eligible businesses include:

• Professionals: Individuals in professions such as doctors, engineers, architects, interior designers, and legal practitioners can opt for the presumptive tax scheme .
• Traders: Small traders dealing in goods and commodities are eligible beneficiaries.
• Manufacturers:  Individuals engaged in manufacturing activities are also welcomed under this provision.
• Service Providers: The scope extends to service providers whose turnover does not exceed the specified threshold.

The significance of Section 44AD lies in its inclusive approach, aiming to encompass a wide array of small businesses and self-employed professionals, easing their tax calculations and fostering a conducive environment for economic growth.

As we journey further into how this provision operates, let us explore the benefits it bestows upon eligible taxpayers and unravel the mechanism of Presumptive Taxation under Section 44AD.

Benefits of Opting for Presumptive Tax

Simplified taxation:.

Explaining Simplified Tax Calculation through Presumptive Tax:

Imagine tax calculations stripped of complexities—a simplified approach where your tax liability is based on a flat percentage of your turnover. This is precisely what Presumptive Tax offers. Rather than diving into intricate accounting and exhaustive record-keeping, you can apply a predefined rate on your turnover to determine your taxable income. This method takes the guesswork out of complex tax computations, allowing you to allocate more time and resources towards your business growth.

Lower Compliance Burden:

Unlocking the Benefit of Reduced Documentation and Accounting:

Conventional tax calculations often demand meticulous record-keeping, voluminous documentation, and comprehensive accounting practices. This burden can overwhelm small businesses and self-employed individuals with limited resources. Opting for Presumptive Tax lightens this load significantly. By embracing this method, you are granted relief from maintaining exhaustive records, intricate accounting practices, and a mountain of documentation. This newfound simplicity in compliance frees up your time and energy, which can be channelled towards enhancing your business operations.

Presumed Income Rate:

Understanding the Role of Fixed Percentage in Tax Calculation:

One of the most distinct features of Presumptive Tax is the application of a fixed percentage of presumptive income on your turnover. For instance, if you are engaged in non-digital transactions, the presumptive income rate is typically 8% of your total turnover. This fixed percentage is deemed your taxable income, eliminating the need for elaborate calculations. This approach simplifies the process and provides predictability, allowing you to estimate your tax liability more accurately.

Presumed income rates are designed to reflect a fair approximation of actual profits. While the actual profits might be higher or lower, this uniform rate ensures simplicity and consistency in tax assessment.

As we explore the practical implications of calculating tax liability through Presumptive Tax under Section 44AD, let’s unravel the steps involved in determining your taxable income, factoring in deductions and exemptions available under this provision.

Calculation of Tax Liability

Clarifying total turnover calculation for presumptive tax:.

Calculating your total turnover is the first step in determining your tax liability under Presumptive Tax. Your turnover includes the gross receipts from your business activities during the financial year. It encompasses the total amount received or receivable from the sale of goods or services, excluding taxes.

It is important to note that turnover for Presumptive Tax purposes includes all receipts related to your business, whether in cash, cheque, draft, or any other form. This comprehensive approach ensures that your tax assessment is accurate and aligned with your business activities.

Illustrating the Calculation Process with Presumptive Income Rate:

Once your total turnover is determined, the next step involves calculating your presumptive income using the applicable rate. For instance, if you are a non-digital transaction business, the presumptive income rate is typically 8% of your total turnover.

Here is how the calculation unfolds:

Presumptive income = 8% of Total Turnover

This calculated presumptive income becomes your taxable income under Presumptive Taxation . It is important to remember that this percentage may vary based on the nature of your business. For digital transactions, the presumptive income rate could differ.

Considering Deductions and Exemptions Available:

While Presumptive Taxation offers a simplified approach to tax calculation, it is full of provisions for deductions and exemptions. Despite the presumptive nature of this taxation method, you are entitled to claim deductions under various sections of the Income Tax Act . Some standard deductions include those related to interest paid on loans, depreciation on assets, and certain business-related expenses.

Exemptions available under other sections of the Income Tax Act can also be claimed. However, navigating these deductions and exemptions under the tax laws and guidelines is essential. Engaging with a tax professional can be particularly helpful in ensuring that you leverage these provisions effectively to optimize your tax liability.

As you calculate your tax liability under Presumptive Tax, remember that while the approach is simplified, precision and adherence to legal requirements are paramount.

Filing Tax Returns:

Explaining reporting of presumptive income:.

Filing your income tax return under the Presumptive Taxation scheme is relatively straightforward. To report your presumptive income, follow these steps:

• Income Details:  In your income tax return form, navigate to the section where you report your business income.
• Presumptive Income: Enter your presumptive income calculated per the applicable rate (e.g., 8% of turnover for non-digital transactions).
• Gross Receipts:  Provide details of your total gross receipts or turnover. This helps validate the calculation of your presumptive income.
• Other Income:  If you have any other sources of income not covered under the Presumptive Taxation scheme, report them separately in the appropriate sections of the return form.

Understanding Income Tax Return Form ITR-4:

Income Tax Return Form ITR-4 , also known as “Sugam,” is the specific form designed to accommodate the needs of businesses opting for the Presumptive Taxation scheme under Section 44AD. This form streamlines the process of reporting your business income, making it compatible with the scheme’s simplicity.

Form ITR-4 gathers essential information about your business’s turnover, expenses, and presumptive income. It also provides space for you to detail any other income sources you might have. This form ensures that your tax return accurately reflects your Presumptive Tax calculations and ensures compliance with the applicable tax laws.

When filling out Form ITR-4, consider the sections relevant to your business and ensure that you provide accurate and complete information. The form’s layout is designed to guide you through the process smoothly, making it easier to report your income and deductions accurately.

As you prepare to file your tax return using Form ITR-4 , remember that while Presumptive Tax under Section 44AD simplifies tax calculations, precision and adherence to reporting requirements remain vital. Consulting a tax professional can provide valuable guidance if you still need to determine any aspect of the process.

Hence, Presumptive Taxation under Section 44AD presents an accessible avenue for simplifying tax calculations for small businesses and self-employed individuals. By understanding its nuances, calculating your tax liability, and accurately reporting your income, you can leverage this scheme to its fullest potential, contributing to a more streamlined and manageable tax journey.

Section 44AD’s Presumptive Tax is a beacon of simplicity tailored to empower small businesses and self-employed individuals in the intricate taxation landscape. With a flat rate applied to turnover, complex calculations dissipate, and reduced compliance burdens grant more space for productive pursuits. The fixed presumptive income rate adds a layer of predictability, aiding financial planning .

However, the significance of meticulous record-keeping remains steadfast, while transitioning beyond income limits necessitates careful consideration. The choice between Presumptive Tax and conventional methods depends on various factors, underscoring the importance of personalized decision-making.

Form ITR-4 becomes the canvas to report presumptive income, and adherence to legal stipulations ensures smooth sailing. This streamlined approach to taxation harmonizes with aspirations of growth and efficiency, offering a win-win scenario for taxpayers and the tax ecosystem.

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FAQs on Section 44AD under Presumptive Taxation

Faqs on section 44ad under presumptive taxation.

To provide the relief to the small taxpayers, the government has issued the presumptive scheme. Because the maintaining the books of accounts is very tedious work for the small taxpayers. It consumes extra money to be efficient. So, section 44AD of the Income Tax Act provides the Presumptive taxation scheme for the Business. Let us know about the Section 44AD for presumptive Taxation through the FAQs on Section 44AD. Following are the FAQs on Section 44AD under Presumptive Taxation: 

For whom the presumptive taxation scheme of section 44AD is designed?

The presumptive taxation scheme of section 44AD is designed to give relief to small taxpayers engaged in any business (except the business of plying, hiring or leasing of goods carriages referred to in section 44AE).

The presumptive taxation scheme of section 44AD can be adopted by the following persons :

• Individual (Resident)
• Hindu Undivided Family (Resident)
• Resident Partnership Firm (not Limited Liability Partnership Firm)

In other words, the scheme cannot be adopted by a non-resident and by any person other than an individual, a HUF or a partnership firm (not Limited Liability Partnership Firm).

This scheme cannot be adopted by a person who has made any claim towards deductions under section 10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant year.

Businesses not covered under the presumptive taxation scheme of section 44AD

The scheme of section 44AD is designed to give relief to small taxpayers engaged in any business, except for the following businesses:

• The business of plying, hiring or leasing of goods carriages referred to in section 44AE.
• A person who is carrying on any agency business.
• A person who is earning income in the nature of commission or brokerage

Apart from above discussed businesses, a person carrying on profession as referred to in section 44AA(1)is not eligible for presumptive taxation scheme.

An insurance agent cannot adopt the presumptive taxation scheme of section 44AD

A person who is earning income in the nature of commission or brokerage cannot adopt the presumptive taxation scheme of section 44AD. Insurance agents earn income by way of commission and, hence, they cannot adopt the presumptive taxation scheme of section 44AD.

A person engaged in a profession as prescribed under section 44AA(1) cannot adopt the presumptive taxation scheme of section 44AD

A person who is engaged in any profession as prescribed under section 44aa(1) cannot adopt the presumptive taxation scheme of section 44ad., a person whose total turnover or gross receipts for the year exceed rs. 2,00,00,000 cannot  adopt the presumptive taxation scheme of section 44ad.

The presumptive taxation scheme of section 44AD can be opted by the eligible persons if the total turnover or gross receipts from the business do not exceed Rs. 2,00,00,000. In other words, if the total turnover or gross receipt of the business exceeds Rs. 2,00,00,000 then the scheme of section 44AD cannot be adopted.

The manner of computation of taxable business income under the normal provisions of the Income-tax Act, i.e., in case of a person not adopting the presumptive taxation scheme of section 44AD

Generally, as per the Income-tax Act, the taxable business income of every person is computed as follows:

For the purpose of computing taxable business income in the above manner, the taxpayers have to maintain books of account of the business. Income will be computed on the basis of the information revealed in the books of account.

The manner of computation of taxable business income in case of a person adopting the presumptive taxation scheme of section 44ad.

In case of a person adopting the provisions of section 44AD, income is computed on presumptive basis at the rate of 8% of the turnover or gross receipts of the eligible business for the year.

In order to promote digital transactions and to encourage small unorganized business to accept digital payments, section 44AD is amended with effect from the assessment year 2017-18 to provide that income shall be computed at the rate of 6% instead of 8% if turnover/gross receipt is received by an account payee cheque or an account payee bank draft or use of electronic clearing the system through a bank account during the previous year or before the due date of filing of return under section 139(1).

Hence, in case of a person adopting the provisions of section 44AD, income will not be computed in the normal manner as discussed earlier (i.e., Turnover -(less) Expenses) but will be computed @ 6% or 8%, as the case may be, of the turnover or gross receipt.

However, a person may voluntarily disclose his business income at more than 8% or 6%, as the case may be, of turnover or gross receipt.

The presumptive income computed as per the prescribed rate is the final income and no further expenses will be allowed or disallowed.

after allowing deduction in respect of expenses which are deductible as per the Income-tax Act and after disallowing expenses which are not deductible as per the Income-tax Act.

In case of a person who is opting for the presumptive taxation scheme of section 44AD, the provisions of allowance/disallowances as provided for under the Income-tax Act will not apply and income computed at the presumptive rate of 6% or 8% will be the final taxable income of the business covered under the presumptive taxation scheme. In other words, the income computed as per the prescribed rate will be the final taxable income of the business covered under the presumptive taxation scheme and no further expenses will be allowed or disallowed.

While computing income as per the provisions of section 44AD, separate deduction on account of depreciation is not available. However, the written down value of any asset used in such business shall be calculated as if depreciation as per section 32 is claimed and has been actually allowed.

No need to maintain books of account as prescribed under section 44AA

Section 44AA deals with provisions relating to maintenance of books of account by a person engaged in business/profession. Thus, a person engaged in business/profession has to maintain books of account of his business/profession according to the provisions of section 44AA.

In case of a person engaged in a business and opting for the presumptive taxation scheme of section 44AD, the provisions of section 44AA relating to maintenance of books of account will not apply. In other words, if a person adopts the provisions of section 44AD and declares income @ 6% or 8% (as the case may be) of the turnover. Then he is not required to maintain the books of account as provided for under section 44AA in respect of business covered under the presumptive taxation scheme of section 44AD.

Payment of advance tax in respect of income from business covered under section 44AD

Any person opting for the presumptive taxation scheme under section 44AD is liable to pay the whole amount of advance tax. On or before the 15th March of the previous year. If he fails to pay the advance tax by 15th March of the previous year, he shall be liable to pay interest as per section 234C.

Note : Any amount paid by way of advance tax on or before the 31st day of March shall also be treated as advance tax paid during the financial year ending on that day.

Provisions to be applied if a person does not opt for the presumptive taxation scheme of section 44AD and declares income at a lower rate, i.e., at less than 8%

A person can declare income at the lower rate (i.e., at less than 6% or 8%). However, if he does so, and his income exceeds the maximum amount which is not chargeable to tax. Then he is required to maintain the books of account as per the provisions of section 44AA. Also, has to get his accounts audited as per section 44AB.

Consequences if a person opts out from the presumptive taxation scheme of section 44AD

If a person opts for the presumptive taxation scheme then he is also required to follow the same scheme for the next 5 years. If he failed to do so, then presumptive taxation scheme will not be available for him for the next 5 years. [For example, an assessee claims to be taxed on the presumptive basis under Section 44AD for AY 2017-18. For AY 2018-19 and 2019-20 and he offers income on basis of presumptive taxation scheme. However, for AY 2020-21, he did not opt for presumptive taxation Scheme. In this case, he will not be eligible to claim the benefit of presumptive taxation scheme for the next five AYs. (i.e. from AY 2021-22 to 2025-26.)]

Further, he is required to keep and maintain books of account. He is also liable for tax audit as per section 44AB from the AY in which he opts out from the presumptive taxation scheme. [If his total income exceeds maximum amount not chargeable to tax]

Faridabad , India

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Section 44AD: Presumptive Taxation for Business

Sakshi Shah

To provide relief to small taxpayers from the tedious task of maintaining books of accounts and getting books of accounts audited, the CBDT introduced the Presumptive Taxation Scheme. Section 44AD of the Income Tax Act provides the provision of the presumptive taxation scheme for businesses. A business with a turnover of up to INR 3 Crore can take the benefit of presumptive taxation under Section 44AD.

Section 44AD: Eligibility

Calculation of presumptive income under section 44ad, income tax on presumptive income under section 44ad, tax audit and books of accounts for presumptive income under section 44ad, section 44ad of income tax: 5 year rule.

The following taxpayers engaged in any business can opt for the Presumptive Taxation Scheme under Section 44AD.

• Resident Individual
• Resident HUF
• A resident partnership firm (not LLP)

The following taxpayers cannot opt for the Presumptive Taxation Scheme under Section 44AD:

• Non-Resident Taxpayer
• LLP i.e. Limited Liability Partnership
• A taxpayer other than an individual, HUF, partnership firm
• Taxpayer claiming deductions under Section 10A/ 10AA/ 10B/ 10BA or Section 80H to 80RRB
• Business of plying, hiring or leasing of goods carriages under Section 44AE
• A taxpayer with agency business
• Taxpayer earning brokerage or commission income. Eg: Insurance Agent

To opt for Presumptive Taxation Scheme under Section 44AD, the following two conditions should be satisfied:

• The gross sales or turnover of the business should be less than or equal to INR 3 Crore.
• The taxpayer should report 6%/8% or more of the gross sales or turnover as income in the ITR.

Note: The prescribed rate of 8% is for non-digital transactions in the business and the rate of 6% is for digital transactions in the business.

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Akshay runs a trading business. The gross sales for FY 2023-24 are INR 1.8 Crore. Sales include cash payments of INR 80 lacs and non-cash payments of INR 1 Crore. Total Purchases are INR 50 lacs. The total expenses are INR 20 lacs which includes a salary, rent, electricity, maintenance, travelling, etc. Can he opt for the Presumptive Taxation Scheme under Section 44AD?

Since the gross sales are less than INR 3 Crore, Akshay can opt for Presumptive Taxation Scheme under Section 44AD.

• Pay tax on INR 12,40,000 lacs as per the slab rate.
• Do not maintain books of accounts as per Sec 44AA.
• Do not go for Tax Audit since the income reported is at least 6% of gross receipts for digital transactions and at least 8% of gross receipts for non-digital transactions.

• Income Head and Tax Rate – Income under the presumptive taxation scheme is a business income classified under the head PGBP . Such income is taxable at slab rates as per the Income Tax Act.
• Claiming Expenses – Since the taxpayer reports a fixed percentage of gross receipts as income, they cannot claim expenses. However, they can claim deductions under Chapter VI-A . Partner’s remuneration and interest on capital can be claimed as an expense in case of a partnership firm opting for presumptive taxation.
• Payment of Advance Tax – Taxpayers opting for a presumptive taxation scheme under Sec 44AD should pay the entire amount of advance tax on or before 15th March of the financial year. If the advance tax payment is not done before the due date, interest under Section 234C is levied. The interest would be levied only if the tax liability exceeds INR 10,000.
• ITR Form – Taxpayers opting for presumptive taxation under Section 44AD should report such income as PGBP Income and file Form ITR 4 on the Income Tax Website . They must mention the specified Business and Profession Codes based on the nature of the profession. If the taxpayer has income from capital gains along with presumptive income, they should file Form ITR 3 .

• Books of Accounts under Sec 44AA – If a taxpayer opts for a presumptive taxation scheme u/s 44AD and reports income at 6%/8% or more of the gross receipts, They is not required to maintain books of accounts as per Sec 44AA .
• Applicability of Tax Audit – If a taxpayer declares income less than 6%/8% of gross receipts and the total income exceeds INR 2,50,000 (basic exemption limit), they should maintain books of accounts and get the books of accounts audited under Section 44AB(e)

As per this rule, if a taxpayer opts for the presumptive taxation scheme in a financial year, they should opt for it for the next 5 financial years continuously. However, if the taxpayer fails to do so, they would not be able to take the benefit of presumptive taxation scheme for the next 5 financial years. For eg: A professional opts for Sec 44AD for AY 2018-19 and AY 2019-20. However, for AY 2020-21, he does not opt for the presumptive taxation scheme. In this case, he will not be eligible to claim the benefit of the presumptive taxation scheme for the next five AYs, i.e. from AY 2021-22 to AY 2025-26.

Yes. If the total tax liability for a financial year exceeds INR 10,000, you must pay advance tax. If you have opted for presumptive taxation scheme u/s 44AD or 44ADA, you are required to pay advance tax on or before 15th March instead of 4 instalments in other cases. However, if you fail to pay advance tax by 15th March of the financial year, interest is Sec 234B and Sec 234C is required to be paid.

A person engaged in a business having gross sales or turnover up to INR 2 Cr has the option to opt for the Presumptive Taxation Scheme under Sec 44AD. They can report 6%/8% or more of gross receipts as income and pay tax on it. If they opt for Presumptive Taxation, they are not required to maintain books of accounts as per Section 44AA. They are also not liable for Tax Audit as per Section 44AB.

Got Questions? Ask Away!

I am a practicing doctor, majority of my receipts are in cash but my gross receipts are less than Rs. 50 lakhs. Can I opt this presumptive taxation scheme?

Hi @Swapnil_Agarwal ,

The condition of cash receipts not exceeding 5% of the gross receipts is applicable only on the enhanced limits of ₹75 Lakhs, so you can opt for presumptive taxation scheme even if your cash receipts exceeds 5% of the gross receipts with total receipts not exceeding ₹50 lakhs.

Hope this helps!!

Hello Niyati, I am working as freelancer for a foreign client. My income would be 60L approximately. Since the income exceeds the limit of 50L but less than 75L can I still opt for sec 44ADA? I have no other source of income.

Hi @Ishwar ,

Yes, you can opt for Sec 44ADA as your income is less than ₹75 Lakhs. The enhanced limits are applicable for the FY 2023-24. Also you will have to check that your cash receipts don’t exceed 5% of the gross income from Freelancing.

Thanks for your reply. I don’t earn any money in form of cash.

Since you won’t be earning any money in form of cash you can opt for Sec 44ADA

Hi @CA_Niyati_Mistry . Thank you so much for your time.

I successfully filed my taxes under 44ADA for AY 22-23. I want to file my tax for AY23-24 now. I have two major questions.

• For AY23-25, do I have to pay advance tax (100% of my total tax) by 15th March 2023 or 2024 ? Which year?
• If I have to pay it by 15th March 2023, I should go to the income tax website and pay advance tax for AY23-24. But I distinctly remember that for AY22-23, I could file my tax from the normal File Income Tax section where I could select section ADA and fill my information and the website would calculate my tax for me. But when opting for advance tax this year I do not see any such options.

Cleartax has this to say.

Further, anyone opting for this scheme is not bound by the mandate of maintaining books of accounts too. While he is also liable to file his return by 31 July of the assessment year, he must file his return in ITR 4.

They say I have to file it by 31st July 2024. What am I missing? Again thank you for your time!

@CA_Niyati_Mistry I have a thread about this topic here now.

On further research I realised I misunderstood quite a few things.

Please correct me if I’m wrong!

Income tax filing and Advance payment are completely different things. You pay advance tax before 15th March of the financial year and then file your income tax returns in the Assessment year.

Okay it makes sense now. I will make the following assumptions for my timeline. Please let me know if I am correct.

For my FY22-23 income, I should go to the income tax website and pay my estimated advanced tax for the income I earned between 1st April 2022 and 31st March 2023 under AY23-24 . Because I’m eligible for 44ADA, I have the benefit of paying it all in one go before March 15th 2023 instead of paying it in instalments.

Then before 31st July 2023 , I will have to file my income tax return. Neutral case - I won’t have to pay anything when filing my ITR because my estimated advanced tax payment was correct. Worst case - I have to file any difference and pay some more. Best case, my advance tax payment was more and I get a refund.

Are the dates mentioned correct? Are my assumptions right? Thanks again for your time.

Hi @Vivek_Negi ,

Yes, the dates mentioned and the assumptions are correct. Income Tax Return filing and Advance Tax payment are two different concepts. While you file ITR after the PY 2022-23 ends till 31st July, Advance tax is the tax liability that you pay before the year ends. In case of 44ADA only one installment of Advance tax is applicable i.e 15th March where you pay the entire estimated tax liability in one go.

At the time of return filing the income will be calculated again and thus tax liability might differ from what you had determined earlier at the time of Advance tax payment. In case you have paid excess Advance Tax you will receive refund and in case of deficiency you will have to pay tax along with interest.

Hope this clarifies!

so . whether i opt for presumptive or non-presumptive ; advance tax has to be paid as pet the % slabs and as per the dates ! am i right ?

Continue the conversation on TaxQ&A

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Participants

Last Updated on 7 months by Shreya Sharma

• Submit Post
• Union Budget 2024

Provisions of Section 44AD – As Amended by Finance Act 2012

CA Sanjay Patel

i. Section 44AD is a part of the Presumptive Scheme of Taxation which reads as “Special Provisions for computing profits and gains of business on presumptive basis” .

ii. Such presumptive taxation u/s 44AD and 44AE was introduced by Finance Act 1994 w.e.f. A.Y. 1994-95.

Under that regime, section 44AD was applicable to assessees engaged in the business of civil construction or supply of labour for civil construction.

Whereas Section 44AE is applicable to assessee’s engaged in the business of plying, hiring or leasing of goods carriages where the assessee does not own more than 10 goods carriages at any time during the previous year.

iii. Yet another section 44AF was introduced by Finance Act 1997 w.e.f. A.Y. 1998-99 which was applicable to assessee’s engaged in retail trade of goods and merchandise.

Now, by virtue of Finance Act (No. 2) of 2009, and w.e.f. A.Y. 2011-12, both Section 44AD and Section 44AF have been substituted by New Section 44AD, which is considered as a paradigm shift in the entire scheme of presumptive taxation , and I would be discussing the same at length.

Further, the monetary limits have been amended by Finance Act 2010 and 2012. Also, a subsection no. 6 has been inserted by Finance Act 2012, w.r.e.f. A.Y. 2011-12 to exclude specified categories of assessees.

I have taken the Issues for Consideration in the paper book based on various subsections of section 44AD as well as Miscellaneous Issues for consideration.

Well a bare look at section 44AD of the Act, gives an impression that it is a step of Finance Ministry towards simplification of Tax Structure and Compliance applicable to Small Businessmen. Also the Section appears to be lucid in interpretation and application, but believe me it is not so as it appears to be.

With this background and without much ado, I start with the various provision of Section 44AD of the Act.

Notwithstanding anything to the contrary contained in sections 28 to 43C , in the case of an eligible assessee engaged in an eligible business , a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or , as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee , shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”.

Ø On perusing the provisions of section 44AD one thing is crystal clear that the moment an eligible assessee is engaged in eligible business, Section 44AD is automatically applicable to such business, unless the case is covered by section 44AD(5). So only under a situation where the actual income is less than 8% of Gross Receipts or Turnover, the assessee can escape applicability of section 44AD of the Act, by maintaining Books of Accounts as per section 44AA clause (iv) and getting the same audited as per section 44AB clause (d).

In all other cases, the assessee is governed by the provisions of section 44AD only, whether the assessee declares income at the 8% or higher income or lower income in cases covered by 44AD(5) where the Total Income does not exceed the maximum amount not chargeable to tax.

Ø  Who is eligible assessee?

According to Explanation (a) to Section 44AD, Eligible Assessee means:

i. A Resident Individual,

A Resident HUF,

A Resident Partnership Firm

(But does not include a Limited Liability Partnership as defined u/s 2(1)(n) of the LLP Act, 2008.)

            AND

ii. Who, out of the above categories of assessees, has not claimed Deduction during the relevant year;

u/s 10A, 10AA, 10B and 10BA

Deduction under any provision of Chapter VI-A under the Heading “Deduction in respect of certain incomes”.

Ø Thus, it is clear that the definition is exhaustive and it includes only what it expressly means. Hence, all other persons such as –

–          Non Resident; Individual, HUF and Partnership Firm

–          Company

–          Limited Liability Partnership

–          AOP / BOI

–          Artificial Juridical Person

Are impliedly not covered by the provisions of this section.

Ø   What is eligible business?

According to Explanation (b) to Section 44AD, Eligible Business means:

(i)  any business except the business of plying, hiring or leasing goods carriages referred to in section 44AE;

(ii)  whose total turnover or gross receipts in the previous year does not exceed an amount of Rs. 1 Crore. (Rs. 60 Lakhs for A.Y. 2012-13)

◊  Here as regards the business of plying, hiring or leasing of goods carriages is concerned, it is important to note that:

i. If more than 10 goods carriages are owned by assessee, then he will be outside the purview of Section 44AE and hence he will get covered under 44AD if the Turnover from such business does not exceed Rs. 1 Crore.

ii. If assessee is carrying out business of plying, hiring or leasing goods carriages which have not been owned by the assessee but have been hired by it, and the turnover therefrom does not exceed Rs. 1 Crore, then also 44AD shall apply instead of section 44AE.

◊ Also, the definition of Business has been enlarged to cover each and every business, except as discussed, be it manufacturing, trading, construction, speculative, job work and so on and so forth.

◊ Here the only thing that has to be borne in mind is the distinction between business and profession, because Section 44AD is applicable to Business and not Profession and Business is different from Profession.

Some activities have been held to be business:-

(i)    Advertising agent

(ii)  Clearing, forwarding and shipping agents – CIT v/s. Jeevanlal Lallubhai & Co. [1994] 206 ITR 548 (Bom).

(iii)  Couriers

(iv)   Insurance agent

(v)    Nursing home

(vi)  Stock and share broking and dealing in shares and securities – CIT v/s. Lallubhai Nagardas & Sons [1993] 204 ITR 93 (Bom).

(vii)  Travel agent.

Ø   What is Total Turnover or Gross Receipts?

Total Turnover means the amount received/receivable from clients in respect of business transaction of the assessee for the relevant Previous Year.

Gross Receipts are the amount received from clients for the services provided or to be provided and does not include the value of material supplied by the client.

The Turnover or Gross Receipts should be inclusive of –

– Sales Tax, Excise duty, Service Tax and other such Levies and Duties,

– Sales of unusable empties and Packages,

– Service Charges charged for delivery, etc.

◊  Now the next question arises as to the calculation of Total Turnover or Gross Receipts.

In this regard the applicability of Section 145 of the Act cannot be ruled out. Section 145 prescribes the Method of Accounting applicable to assessees for computing income from Business or Profession. Section 44AD does not override this section. Hence, as per this section the assessees have an option to choose either Mercantile or cash method and determine the Total Turnover or Gross Receipts Accordingly.

(If the method adopted is Mercantile, the Turnover can be calculated on the basis of Sales Bills / Purchase Bills and other ancillary records like Debit Note/ Credit Note, etc.

Whereas, if cash system is followed, the Receipts as per Bank Statement and Cash Records could be Grossed up, if there is any deduction like TDS, etc., to determine Turnover or Gross Receipts.)

Ø   Consider the following: –

–          Net Profit as per Books of Accounts – Rs. 10 Lakhs

–          Income @ 8% of Turnover – Rs. 8 Lakhs. (i.e. Turnover is Rs. 1 Crore.)

–          Income as per Normal Provisions of Act – Rs. 7.5 Lakhs.

For the purpose of comparison of Actual Income with income @ 8% of Turnover, which amount should be considered, Net Profit as per Books or Income from Business and Profession as per Normal Provisions of Act?

◊ In this situation, it has to be borne in mind that the provisions section 44AD override sections 28 to 43 C of the IT Act.

Hence, the question of computation of income as per normal provisions does not arise.

Thus, income as per the records maintained by the assessee needs to be compared with presumptive income at the rate of 8% to find out whether the same is higher or lower than 8% of Turnover. If it is lower 44AD (5) comes into picture and if the same is higher, the assessee is at the option to disclose the same in the return of income.

Ø   Consider and comment on the following: –

–          The assessee filed return of income u/s 44AD of the Income Tax Act, and the assessing officer wants to disallow the following:-

i.                    Rs. 1 Lakh u/s 40(a)(ia) ii.                 Rs. 1 Lakh u/s 43B iii.               Rs. 1 Lakh u/s 40A(2)

◊ As per section 44AD (1), this section overrides section 28 to 43C of the Act, and hence all those section could not be applied once the assessee is assessable u/s 44AD of the Act.

In this regard reliance can be placed on the decision of Ahmedabad Tribunal in case of Gopal Raj Purohit 94 TTJ 865.

(Here, though no disallowance is called for u/s 40(a)(ia), but if the assessee (assuming an Individual or HUF) is covered by clause (a) or (b) of section 44AB in the immediately preceding year, then he will be deemed to be an “ assessee in default” u/s 201 of the Act, unless he satisfies the conditions stipulated therein for not being treated so.

Further, if the assessee satisfies the conditions for not being treated as “ assessee in default” , he cannot escape the liability of Interest u/s 201(1A). However, as he is not an “ assessee in default” the Penalty u/s 271C can be avoided.)

Ø Can assessee file Return u/s 44AD declaring Income @ 8% of Turnover (assuming Turnover is not exceeding Rs. 1 Crore) even though he has earned more than 8%?

Can the Assessing Officer add the Difference between actual income and disclosed income in the assessment proceedings?

{Let us assume that the Turnover of the assessee is Rs. 50 Lakhs and all the receipts are by cheque and the same is deposited in the only Bank account maintained by the assessee. There are no outstanding receipts at year end.

All the payments for expenses on revenue account are through cheques debited to the same account and there are no outstanding expenses at year end. The total expenses are Rs. 25 Lakhs.

Thus the balance of Rs. 25 Lakhs as per his bank account is the income as per the records of assessee.

He filed Return u/s 44AD declaring of Rs. 4 Lakhs @ 8% of Turnover.

Can the AO add the difference of Rs. 21 Lakhs to the income of assessee?}

◊ First of all the assessee, being covered by section 44AD, is under no obligation to maintain books of accounts u/s 44AA.

Secondly, the turnover being less than Rs. 1 Crore and declared income not being less than 8% of Turnover, Section 44AB is not applicable to the assessee.

◊ Further the assessee is given the option u/s 44AD (1) to declare higher income. The word used is 8% OR higher income.

Thus, the option is with the assessee to disclose higher income OR to file Return disclosing the income @ of 8% of Turnover.

Here the assessee is free to exercise any option at his will. He may morally show actual income and pay tax on it as an Honest citizen of the country, but such Honesty is not digressed even if he files return @ 8% as he is legally correct. (Here the decision of Honourable Supreme Court in case of Dr. Qureshi can be recalled where the apex court, condemning the High Court, held that “cases have to be decided on merits and legality instead of morality”.)

Legally he is given the option by the statute and such an option cannot be equated with obligation cast upon the assessee. There is a definite difference between OPTION and OBLIGATION and an Option granted to the assessee cannot be construed to be his obligation when his actual income is more than 8% of Turnover.

◊ Also, the AO cannot make any addition on this count as there is no provision under the Act permitting to make such addition.

◊ Further, the words used are “higher income claimed to have been earned by the assessee”.

Here if the assessee has not made a claim in the Return of Income regarding any higher income, it implies there is no claim for Higher Income made by assessee. AO cannot claim that the assessee has earned higher income, because under the statue, he is not entitled to do so.

Any deduction allowable under the provisions of sections 30 to 38 shall , for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed :

Provided that where the eligible assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub-section (1) subject to the conditions and limits specified in clause (b) of section 40.

◊ It implies the following: –

i. No deduction 35AD for any capital expenditure incurred by the assessee for specified business,

ii No carry-forward of depreciation u/s 32 or business loss, (except in cases covered by 44AD(5))

iii. No weighted deduction for contribution to research institutes, etc.

(Here, one thing that requires consideration is deduction of capital expenditure is available to assessees in case of specified business u/s 35AD. It is a newly inserted section by Finance Act (no. 2) of 2009 w.e.f. A.Y. 2010-11. Remember this was the same Finance Act which introduced New Section 44AD.

In my humble view, the provisions of section 44AD needs to be amended to exclude such businesses covered by section 35AD from its scope otherwise it implies that assessees covered by section 44AD cannot take benefit of section 35AD which promotes investments.

Such a situation will lead to unfair practices and will motivate assessees to bring down the profitability of business by manipulating books of account and to go for audit and get the benefit of such sections. { One can show less income as per books and get the same audited and compute income as per normal provisions of Act, because u/s 44AD income can be 8% of Turnover or higher, but it cannot be lower.)

(In my personal view, a consequential amendment should follow soon.)

Ø   In case of partnership firms where 44AD is applicable, how to compute Salary and Interest payable to partners u/s 40b?

As per the provisions of section 44AD(2), the deduction u/s 40b in respect of remuneration and interest to partners is allowable.

The interest to partners can be credited by preparing a Memorandum Capital Account of Partners where no books are maintained. Whereas where books are maintained the same can be credited as per the balance in capital account as per the books so maintained.

As regard remuneration, the deemed income @ 8% of Turnover or higher income, as reduced by Interest paid to partners shall be deemed to be the BOOK PROFIT for the purpose of 40b and Salary can be calculated accordingly. (Because such income @ 8% or higher income, is nothing but deemed income form business as per this section and the same is before allowances under section 40b.)

–          Turnover of assessee – Rs. 50 Lakhs

–          Income @ 8% – Rs. 4 Lakhs & Actual Income as per records of assessee is Rs. 4.5 Lakhs (after deducting current depreciation as per books of Rs. 5 Lakhs). Assessee declares Income of Rs. 4.5 Lakhs as per books as income u/s 44AD of the Act.

–          Unabsorbed Depreciation brought forward – Rs. 10 Lakhs

–          Unabsorbed Business Loss brought forward – Rs. 10 Lakhs.

Comment on the set off of brought forward loss and depreciation and it carry forward to subsequent years.

◊ First of all it is worth considering that set off of brought forward unabsorbed business loss is governed by section 72 of the Act.

Whereas set off of brought forward depreciation is governed by section 32 (2) of the Act and as per section 32 (2) of the act, brought forward depreciation gets merged with and forms part of current depreciation.

◊ As regards the set of brought forward business loss is concerned the same is available to the assessee as a reduction in Income in Order to arrive at the Gross Total Income of the assessee. (Reliance can be placed on Universal Cargo v/s CIT (Cal.) 165 ITR 209.)

◊ Whereas, unabsorbed depreciation is not akin to business loss. Hence set off of the same is not permissible. (Reliance can be placed on Universal Cargo v/s CIT (Cal.) 165 ITR 209.)

Here, in the given example) total depreciation as per section 32 including brought forward depreciation as per section 32(2) comes to Rs. 15 Lakhs.

However, as per section 44AD(2), all deductions u/s 30 to 38 shall be deemed to have been given full effect to and no further deduction under those section shall be allowed.

So technically and legally speaking, the assessee cannot take set off of unabsorbed depreciation against income as per section 44AD of the Act.

(Here no set off or deduction for depreciation in the current year is not an issue that requires due consideration.

What is annoying indeed is the words “ full effect” and “ no further deduction under those sections shall be allowed” .

Does this mean that, the unabsorbed Depreciation of Rs. 10 Lakhs is reduced to “ NIL” in the current year under consideration and hence the same cannot even be carried forward?

The answer is YES, because legally the language of section is very clear and unambiguous. But logically, this sounds unjust. But, it has been rightly said that what may be Logical may not necessary be Legal always and vice versa.

Look at the anomalous nature of the provision. On one hand assessee is paying tax on deemed income u/s 44AD, whereas on the other hand, the assessee is losing the benefit of brought forward depreciation of earlier years. This leads to double jeopardy. The provision seems to be arbitrary to this extent.

(This is the area which will give rise to maximum litigation. )

The written down value of any asset of an eligible business 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 assessment years.

◊ Here, it is significant to note that WDV has to be calculated as per section 32 of the Act for the purpose of arriving at closing WDV at year end and for the purpose of applicability of section 50 of the Act relating to Short Term Capital Gain / Loss in case of Depreciable assets.

FOR EXAMPLE: –

Mr. A, a Resident individual having a machinery of RS.1,00,000/- as on 31-03-2011 eligible for depreciation under section 32 @ 15%. In A.Y 2011-12, he is covered by Section 44AD. In the Assessment Year 2012-13, his turnover is Rs. 1.5 Crores, so he calculated his profit as per normal provisions of the Act. In A.Y 2013-14, he is again covered by Section 44AD, In this Assessment year he sold the Assets for Rs.80,000/-. What are the implications of the asset so sold under the Income Tax Act?

Calculation of WDV:

Calculation of Capital Gains

The provisions of Chapter XVII-C shall not apply to an eligible assessee in so far as they relate to the eligible business .

◊ Chapter XVII-C deals with provisions relating to Advance Payment of Tax.

On plain reading of this subsection, we conclude that eligible assessees are exempt from payment of Advance Tax.

But the second part of Provision “in so far as they relate to eligible business” has created a blunder so far as practical computation of advance tax in concerned and has taken away the sheen out of the first part.

Ø     Consider and comment on the following: –

Income under section 44AD                           Rs 4 lakhs

            (Say Turnover is RS.50 lakhs)

Interest Income                                           Rs.5 Lakhs

Total Income                                                     Rs.9 lakhs

◊   Now the question is How to calculate Advance tax when the assessee has income u/s 44AD as well as some other income?

From the understanding of Law, it is clear that the assessee has to pay advance tax on interest income of Rs.5 Lakhs. But how this tax calculation is to be made is nowhere provided in the statute?

(However one may consider the following option: –

Option 1 : Calculate advance tax on Rs. 9 Lakhs and calculate average tax rate and then apply such average tax rate on 5 Lakhs and pay advance tax accordingly.

Option 2 : Calculate advance tax on Rs. 5 Lakhs only as if it is your total income.

The matter requires to be resolved at the earliest.)

Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee who claims that his profits and gains from the eligible business are lower than the profits and gains specified in sub-section (1) and whose total income exceeds the maximum amount which is not chargeable to income-tax , shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.

◊ This subsection talks of two cumulative conditions for applicability of 44AA and 44AB: –

i. The Income from eligible business is lower than 8% of Turnover or Gross Receipts,

ii. The “TOTAL INCOME” exceeds the maximum amount not chargeable to tax.

Ø     Mr. A is having Turnover from Eligible Business of Rs. 30 Lakhs. He does not have any other income. His actual Income as per his records (books) is Rs. 125000/- and he wants to file Return declaring the said Income u/s 44AD of the Act. Comment in light of provisions of Section 44AD(5) of the Act.

@ What if there is Loss of Rs. 125000/- in the said example?

◊ As both the conditions of section 44AD(5) are not satisfied in case of the assessee, the provisions of section 44AA and 44AB are not applicable and the assessee is still covered by section 44AD and his Income u/s 44AD will be Rs. 125000/-.

It is only when his total income exceeds the maximum amount not chargeable to tax, that he will be covered by 44AA and 44AB of the Act, and normal provisions of computation of Income from Business and Profession will apply.

◊   The situation will not change even in case of loss. The Return will be filed as per book results only.

  Ø     Let us assume that M/s. XYZ is a partnership firm. The relevant details are as under: –

–          Turnover from eligible business – Rs. 25 Lakhs

–          Net Profit as per books (before 40 b allowances) – Rs. 2 Lakhs

–          8% of Turnover – Rs. 2 Lakhs

Thus Income u/s 44AD (1) is Rs. 2 Lakhs.

Comment in light of provisions of Section 44AD(5) of the Act in case the firm pays Partners Interest and Remuneration of Rs. 100000/- each. Thus the TOTAL INCOME is Rs. NIL.

@ What if the firm does not pay Remuneration and Interest but even then the TOTAL INCOME is Rs. NIL because of set off of brought forward business loss of Rs. 2 Lakhs?

@ What if the Net Profit as per books (before 40 b allowances) is Rs. 1.5 Lakhs only and the firm pays Remuneration of Rs. 1.5 Lakhs, thereby reducing the TOTAL INCOME to Rs. NIL?

◊   In the present case in situation 1, the firm is not covered by 44AA and 44AB because the first condition of 44AD (5) that the income should be lower than prescribed u/s 44AD (1), is not applicable as the Income of the firm before allowances u/s 40 b is Rs. 2 Lakhs which is not lower that 8% of Turnover.

Here it is pertinent to note that the words used in 44AD (5) is lower than prescribed u/s 44AD(1) , which means, in case of partnership firm, Income before allowances u/s 40 b of the Act, because the allowances are governed by section 44AD (2).

◊ In situation 3, the firm is covered by first condition of 44AD (5), i.e. the income before 40 b allowances is lower than 8% of Turnover.

But, the TOTAL INCOME is Rs. NIL. Now the question arises for consideration is whether NIL amount is an amount and can it be considered as the maximum amount not chargeable to tax?

In Central Excise it is a trite law that NIL rate of duty is a specified rate of duty for all purposes of the Act and hence all provisions, notifications, etc. applicable to Exempted Goods are not applicable where the goods are chargeable at NIL rate of Tax. It implies that duty is leviable on goods at NIL rate.

Applying the same analogy here, one can say that NIL Income is the maximum amount not chargeable to tax in case of partnership firms and hence the second condition of 44AD (5), being not satisfied, the firm is not covered by 44AA and 44AB of the Act and is legally correct if it files NIL Return u/s 44AD of the Act. (The same logic can be extended to loss cases as well)

(However, the logic, though apparently correct, is highly technical in nature and may lead to furious litigation on the subject.)

  Ø     An eligible assessee is carrying on three eligible business, the turnover of which is as under :

–          Business A ( Manufacturing) Rs. 40 Lakhs

–          Business B ( Trading) Rs. 40 Lakhs

–          Business C ( Service) Rs. 40 Lakhs

Comment in view of provisions of section 44AB vis-à-vis section 44AD of the Act.

@ What if, in the same example, if the details are as follows: –

  ◊ Business A ( Manufacturing) Rs. 90 Lakhs

◊  Business B (covered by 44AE) Rs. 25 Lakhs.

◊ If assessee is running multiple businesses, turnover of all those businesses shall be determined as per method of accounting regularly employed for respective businesses. Further the turnover so determined shall be clubbed to determine whether limit of Rs. 1 Crore gets exceeded. Thus section 44AB is applicable as it is Qua Assessee.

This view is based on ICAI’s Guidance Note on Tax Audit as well as the decision of Honourable High Courts in case of Bajrang Oil Mills (Raj.) 295 ITR 314 and in K. Satish Shetty (Kar.) 310 ITR 366.

(Now, the point that needs consideration is whether, even after applicability of section 44AB, can the assessee take advantage of section 44AD in respect of each business independently as the Turnover from each distinct business does not exceed Rs. 1 Crore?

(The assessee in such a case will be required to get the Turnover or Gross Receipts audited u/s 44AB. This view is possible only if it can be successfully argued that the word used in Section 44AD  “eligible business” is Singular in nature and hence the section is qua business and thus the benefit of said section is available applying the ratio that while Plural includes  singular the vice versa is not always true.

However, in case of Vineetkumar 46 SOT 97 (Rajkot Bench) , w.r.t. section 56(2) has held that “ singular incudes the plural” .)

◊ Thus in this case, assuming 44AD(5) is not applicable, both section 44AD and 44AE are applicable to the assessee.

The provisions of this section, notwithstanding anything contained in the foregoing provisions, shall not apply to—

  (i)  a person carrying on profession as referred to in sub-section (1) of section 44AA;

 (ii)  a person earning income in the nature of commission or brokerage ; or

(iii)  a person carrying on any agency business .

  ◊  The above amendment has been brought by Finance Act 2012 w.r.e.f A.Y. 2011-12 . However, as regards this amendment, the following needs to be considered:

i. So far as Profession is concerned it is well established that Business and Profession are different and hence this section is not applicable in case of Profession and as section 44AD covers only Business, this section was even otherwise not applicable to Profession. This amendment is simply clarificatory in nature and hence even its retrospective applicability is not an issue.

ii. Now consider the retrospective applicability of clause (ii) and (iii) of this subsection.

What about all those who got there accounts audited (in case of lower income) and fled Return of Income in September instead of July. What about the Interest Liability u/s 234A and 234B? (Here 234C will remain unchanged as the assesse has already paid it while filing return.) (Once the case is selected for scrutiny assessment, even if the returned income is accepted as assessed, the AO or CIT(A) will simply say that “Charging Interest u/s 234A, 234B and 234C is mandatory in view of Honourable Supreme Court’s decision in case of CIT v/s. Anjum Ghaswala 252 ITR 1.”

Here it has to be borne in mind that Advance tax is not applicable in so far as it relates to eligible business only. So what about all those who filed Return u/s 44AD? What about Interest u/s 234B and 234C?

(However, the assessee cannot be penalized for no fault attributable to him. Thus, he is supposed to file return as per the law applicable as on that date as he cannot expected to foresee the amendments to be brought in future. Following the principle of Equity in Justice, the retrospective application of said clauses is inconsequential so far as it relates to the issues so discussed.)

iii. Further, and significantly so, there was much hue and cry, in the entire sector deriving income in the form of Commission or Brokerage that the provision of 8% is too much and harsh as the margin is much lesser in such business and hence they were compulsorily forced to get their accounts audited.

Here, it is pertinent to note that in such business, what constitutes Turnover is not the entire Sales or Purchase Value but only the Commission or Brokerage so earned. This view is expressed in the Guidance Note on Tax Audit issued by the ICAI and is by now a trite law from judicial angle as well.

So, when your Turnover itself is restricted to the commission or brokerage income, where is the question of 8% presumptive rate on turnover, being harsh? Instead it should be a beneficial provision indeed for such business.

(However, according to me, the intention of Finance Ministry seems to be much different. It can very well be argued that in such business the profitability is much higher than 8% and to stop the assessees from disclosing income @ 8%, this amendment has been made so that the taxability is governed by normal provisions of the Act which would hopefully result in higher income than 8%. If this is the real intention behind the amendment, soon amendments will come in the following years so as to exclude all businesses where they think that the profitability is higher than 8%.)

MISCELLANEOUS ISSUES

  Ø    Is section 44AD applicable to the assessee in search/survey cases, where the total of disclosed as well as undisclosed Turnover does not exceed Rs. 1 Crore?

  ◊ The answer is YES, because if both the assessee and business are eligible, 44AD automatically comes into equation without hesitation unless the case is covered by 44AD (5).

In this regard, reliance can be placed on the decision of ITAT Pune in case of Balaji Construction 72 ITD 559 and to some extent on ITAT Ahmedabad in case of Abhi Developers.

  Ø    Whether the provisions of section 68 and 69 to 69D are applicable to the assessee covered by section 44AD?

  ◊ Section 44AD does not over ride section 68 and 69 to 69D, so the assessee has to explain the cash credits, investments, etc. as required under those sections.

One may even argue that addition u/s 68 could not be made when no books are maintained as held in case of Ms. Mayawati. However, this decision is like the inconsequential in the sense that if a particular entry in say Bank pass Book cannot be equated with books, even then to set the controversy at rest, the AO or CIT(A) can very well add the same u/s 69A of the Act.

However, is the assessee supposed to explain each and every entry of credit/investment?

It is not so. It has been held by Hon’ble Punjab and Haryana High Court in case of CIT Vs. Surinder Pal Anand 192 Taxmann 264 , that assessee need not explain each and every entry of deposit / investment unless such entry had no nexus with gross receipts.

Hence, the assessee is under obligation to explain only the deposits or investments higher than Gross Receipts or Turnover.

  Ø    Whether the eligible assessee can claim Deductions u/s 80C to 80GGC and 80U from the income computed u/s 44AD?

  ◊ The answer is YES, because section 44AD(2) says that only Deductions u/s 30 to 38 shall be deemed to have been allowed and given full effect to.

Thus, all Deductions u/s Chapter VI-A falling u/s 80C to 80GGC and 80 U are available to the assessee.

(As regards other Deductions under Chapter VI-A is concerned; it is pertinent to note that all the remaining Deductions are “ Deduction in respect to certain Incomes” and in such cases as per Explanation (a) to 44AD, such assessees are not eligible assessees for Section 44AD of the Act. So the question does not arise.)

  Ø     The assessee, being an Individual, had Turnover of Rs. 50 Lakhs for F.Y. 2011-12 and his actual profit for the year was Rs. 2.5 Lakhs. The profit being less than 8%, he got the accounts audited u/s 44AB and filed Return accordingly.

Now, the question is, whether he is required to comply with TDS provision under Chapter XVII-B of the Act for the F.Y. 2012-13 as his case was covered by Tax Audit for the immediately preceding F.Y.?

  ◊ The answer is NO, because only if an Individual or HUF assessee is covered by provisions of clause (a) and (b) of section 44AB of the Act for the immediately preceding F.Y., then they are required to comply with the provisions of TDS under Chapter XVII-B.

In the present situation, the case of assessee for F.Y. 2011-12 was covered u/s 44AD (5) and 44AB clause (d), and hence he is not required to comply with the TDS provision contemplated under Chapter XVII-B of the Act for the F.Y. 2012-13.

  Ø    Confusion in filing the Return of Income

  ◊  As per General Instruction No.2 appended to ITR-4S(Sugam), Sugam is to be used when assessee is having business Income computed according to special provisions of 44AD and 44AE.

Section 44AD as well as 44AE not only covers situations where income is shown @ 8% but also covers cases where higher income can be shown.

 But SCH BP on ITR-4S is :

E1. Gross Turnover or Gross Receipts

E2. Total presumptive Income u/s 44AD(8% of E1)

E3. Presumptive Income from Heavy Vehicles

E4. Presumptive Income from Other Vehicles

E5. Total Presumptive Income under 44AE (E3 + E4)

E6. Income Chargeable under Business (E2 + E5)

Hence the format does not allow reflecting income higher than presumptive Income.

Further as per General Instruction No.4 appended along ITR-4S, if assessee maintains books of accounts u/s 44AA, then ITR-4 is required to be filed. Hence if ITR-4S is filed one has to take stand that assessee is not maintaining account books.

As per Instruction No. 3(e), For Speculation business also ITR-4S cannot be filled in ITR 4S (Sugam).

  (Here it is significant to note that the definition of Eligible Business covers all businesses where the turnover is not exceeding Rs. 1 Crore except business referred to in Section 44AE. Thus, by no stretch of imagination one can say that Speculation business is not covered by 44AD.)

With this, I conclude my paper on section 44AD. I tried to cover up all the key issues and I have tried to bring to the fore, the glitches in practical applicability of 44AD. I once again put emphasis on the fact that the section, though apparently so simple and hardly running into one page, will lead to numerous controversies and we will ultimately have a plethora of case laws in the years to come.

To sum up, every Simplification of System, as these draftsmen say so, should be done with utmost care and extra caution and in such a way that is achieves the desired purpose rather than aggravating the controversies. It is well said that “ problems cannot be resolved by the same level of consciousness that created them .”

(Author can be contacted at [email protected])

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43 Comments

Dear Sir, Thank you for the above information. It was very useful. As per the above information, it is mentioned that Courier services is mentioned to be considered as Business eligible for the purpose of Section 44AD. Can you please share the extract of case law or a notification or any other material stating the same as Fact. The reason for asking evidence is that my friend is running a courier business and has filed ITR4S (U/s 44AD) for AY 2016-17 and he has got notice for defective return stating that Section 44AD is not applicable in case of that particular assessee.

I, individual Income Tax payee, last years Turnover Rs. 1,10,00,000/-(AY 16-17), expect turnover to be around 70 Lacs to 80 Lacs this year, from the manufacturing business. I have been showing net profit more than 25% of turnover in previous years. Can I opt for Income Tax Return u/s 44AD with 8% presumptive tax?. How do I inform the Income Tax Department?. Unaware, I have failed to pay 15% advance Tax on 15.06.16. I am not maintaining Account Books, except Sales Book. I have received notice from DC Income Tax for not filing Advance Tax 15% due 15.06.16. Things are not very clear about 44AD. Can I inform him, that I shall file the Income Tax Return u/s 44AD. Kindly guide. Kindly also reply at my mail id [email protected] . Thanks, Vijay Kumar Dadoo/09412070828

Dear, Ramdas,

In calculation of income part U/s 44AD is good, but it is Clearly contradictious to acertain the addition in capital account where the income is actually is Low as per books and declared/claimed higher as per the act to escape maintaing books for audit.

the significance is natural due the assessee may required to maintain his Balance sheet for his status and future ease.

sir, CA Sanjay Please Revert.

Sir, I tried to find out the case of Dr. Qureshi (Supreme court) mentioned in this article section [44AD(1)] but didn’t found any such case. Kindly provide that case law to me as soon as possible. I would be obliged.

Sir, How to calculate 234 C if individual Assessee has Income From Business Rs 315,515 including Rs 200,000/- from deemed profit u/s 44AD and short term capital Gain Rs 1,164,000 and TDS Rs 75,500 during the FY 2014-15.

Sir, How to calculate 234 C if individual Assessee has Income From Business Rs 315,515 including Rs 200,000/- from deemed profit u/s 44AD and short term capital Gain Rs 1,164,000 and TDS Rs 75,500 during the FY 2014-15?

URGENT : what should be done if a return has been filed u/s 44AD showing turnover of 50 lakhs but the A.O. has assessed it to be 5 crores? Is the assessee liable to any penalty? If yes, then how much?

Please note,I seen Your Valuable note for the Prov. for filling ITR in the case of Business income and Losses and wish to have Your valuable opinion .

Please support me and give me Your Valuable advice and opinion on my matter i.e

I had in Future and Option i.e in shares Derivatives business had loss figure is Rs.9,50,000.00 and profit figure was Rs.419600.00,so the balance was Loss on Derivative business of Rs. 536400.00 ( 419600-956000)

Long term Capital gain on sale -Buy Back of shares Hind Unilever of Rs 3,29,200.00,so cant be claimed Tax Free Long term Cap. Gain.

and insurance Commission taken Rs.31,616.00 without maintaining the books.

I filled the I.T. R on 31st July 2014 Loss Return and claimed –

1) Profit and gains from from business and prof. RS. RS.

—————————————————————— ————————— ————————-

commission income without books 31,616.00

Share Trading income LOSS – 5,36400.00

– (5,04,784.00)

2.) Capital Gains 3,29,200.00 3,29,200.00

3.)Income from other Sources 5,640.00 5,640.00

————————————

Total Income – ( 1,69,944.00 ) as UnAbsorbed Loss Carry forwarded

Total Taxable income Nil

TDS 5,609.00

Refund 5,609.00

I asked the same to my CA and a CA from Hyderabad who confirmed that I filled the ITR correct .

Please confirm whether that the Filled ITR -4 is right

kindly do guide and give Your Valuable advice. I will be highly obliged in getting Your Valuable opinion.

Best Regards,

Sanjay Chandak

Hi…. Good Morning.

I am Sub-Broker of XYZ Sec.I have a private limited corporate client. It is a IT Co. They deals in trading of shares and trading in future and options. We had a deal that whatever profit/loss arise in future and options we will share in 70:30 ratio. In the month of July 2015, I have generated Rs. 3 Lac profit. So I am eligible for Rs.90k profit.

Now please let me know can I take this amount as a professional fees from my client as professional fees for advisory work. So can they give me the fees after deducting 10% TDS and can they claim it as a expenses?? So is their net profit will be 300000-90000 = 210000.

Waiting for your kind reply. Please do the needful

Regards Keeran K. Ghosh

We are the partnership firm and decided to file returns under 44AD as our turnover is less than 1 crore. We will declare profit more than 8% which I hope is allowed.

1. Now question is which of the ITR form we need to use for filing the returns. ?. ITR 4S is not applicable to partnership firm. ITR 5 looks too complicated

2. Suppose my actual income is more than 8% but we declare income only 8% and pay income tax for that. But now actually in my kitty I have more money than declared under 44AD. So, later when I spend this excess money, will the question will come where from I have this money ?. is there any provision for declaring actual income officially, but for tax paying purpose, we declare 8% income ?.

Interest under Section 234 B & C are not applicable if one opts for Presumpmtive Taxation Scheme. But will interest be charged if someone has Presumptive Income,Salary & Other Sources Income? If yes, then on what amount ?

Sir, I HAVE ONE ISSUE.. MY CLIENT HAS SALARY INCOME, BANK INTEREST INCOME AND PROPERTY RENT INCOME OF A.Y.13/14. HE IS AN INDIVIDUAL AND HE HAD PAID SELF ASSESSMENT TAX RS.58020/- HE HAD PAID ADVANCE TAX OF Rs. 20000 ON MARCH 23 2013, NOW IN INTIMATION 143(1) A.O. HAS LEVIED INTEREST U/S 234B & 234C. TAXABLE INCOME INCLUDING SECTION 44AD IS Rs. 1000970. INCOME UNDER SECTION 44AD IS Rs. 209648. TDS RS 62398. COULD U HELP ME WITH A SOLUTION? DUE DATE FOR FILING ORIGINAL RETURN WAS 05.08.2013 AND THE DATE OF FILING RETURN IS 21.03.2014. AS PER THE COMPUTATION IN THE INTIMATION 143(1), INT U/S 234B SHOWS RS 4404 AND U/S 234C SHOWS RS 2098. HOW DO I ARRIVE TO THEIR COMPUTATION?

can i file return of coaching class under section 44AD

I could not understand what will be the ‘eligible business’actually mean which does not effected u/s. 44AD:

“Also, the definition of Business has been enlarged to cover each and every business, except as discussed, be it manufacturing, trading, construction, speculative, job work and so on and so forth.

I have earned Rs 4 Lakhs in current FY 2013-14. I have earned money from private Vocational classes at home like Stitching, Cooking, Painting and Tuition. Since all these are casual earnings, I have not maintained any book of accounts or record. Is it mandatory to maintain book of account to show proof of my income. Please help. Thanks. Regards. –

44AD (5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee who claims that his profits and gains from the eligible business are lower than the profits and gains specified in sub-section (1) and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB. ◊This subsection talks of two cumulative conditions for applicability of 44AA and 44AB: – i. The Income from eligible business is lower than 8% of Turnover or Gross Receipts, AND ii. The “TOTAL INCOME” exceeds the maximum amount not chargeable to tax.

MY QUESTION : DOES TDS PROVISION ARE APPLICABLE TO ASSESSEE AT TIME OF FIRST YEAR OF TAX AUDIT ?

I have a loss in case of my firm and salary income which is above taxable limit. Will sec 44AD(5) be applicable to me? Or do i need to get my books audited?

Thank you for the explanation. Would appreciate you replying to my query! Thanks again.

SIR I HAVE ONE PROBLEM MY CLIENT HAS BANK INTERST INCOME AND PROPERTY RENT INCOME OF A.Y.12/13 HE IS SENIOR CITIZEN AND HE HAD PAID SELF ASSESSMENT TAX RS.40500/- HE HAS NOT PAID ADVANCE TAX, NOW IN INTIMATION 143(1) A.O.HAS LEVIED INTEREST U/S 234B & C AS ACCORDING TO ME IT SHOULD NOT BE LEVIABLE IS IT CORRECT OR NOT

I have earned Rs 4 Lakhs in current FY 2013-14. I have earned money from private Vocational classes at home like Stitching, Cooking, Painting and Tuition. Since all these are casual earnings, I have not maintained any book of accounts or record. Is it mandatory to maintain book of account to show proof of my income. My husband has a separate PAN and I have a separate PAN. My husband is a Tax payer. How do I file my IT Return separately? Please help. Thanks. Regards.

I have gross receipts of Rs.30 Lacs. All Cheque + Cash payments into bank account I have only 10 Lacs business expenses (including purchases). So is it ok if I pay tax on only .08 * 30 = 2.4 Lac rupees – net profit. Or do I have to pay tax on 20 lac.

The balance 20 lac will remain in my bank account.

Also can you help differentiate between profession and service business.

sales turnover is Rs.50,00,000, cash discount allowed Rs.87,000, chit dividend received Rs.66,000 interest earned Rs.20,000.

in this scenario what will be turnover/gross receipts for the purpose of 44AD either Rs.50,00,000 or Rs.51,73,000

Clear concept of section 44AD

This is clear concept of Section 44AD

Sir wonderfully you have explained the concept.

Please keep on writting for other sections as well.

excellent article. sir, i run a small coaching class with gross receipts around 8 lacs (so no service tax applicable). can i take benefit of section 44ad. please advise at earliest.

A Partner ship firm gross receipts received Rs 950000/- and expenses RS 892000/- Net profit as per books 58000/- . how to caliculate income tax as per books or u/s 44AD. please clarify the tax caliculation

thanking you sir

Very useful and clear description of Sec 44AD. Thank you…

sir if commission eaned by sub broker RS. 5 LAKH And profit is rs.10000.in such case tax audit required?

truly ‘guru’ category author . . . keep it up

sir,which form can i use for filing returns under 44AD For Patnership firm,ITR4S Shows only for individual and HUF… Plz reply…

good article so useful

sir,which form can i use for filing returns under 44AD For Patnership firm,ITR4S Shows only for individual and HUF.PLS replay immediatly

sir i have one qus., in calculating income u/s 44AD profit is presumptive ,so in capital account which income should be added actual or presumptive, please answer,, thank you

Is there a form available for filing returns u/s 44AD for partnership firms. ITR 4S shows that it is only for Individuals & HUF. If not, where do we declare partners remuneration

Plz reply thank you sir.

Sir want ask by this example . I sell goods to one comany XYZ Pvt.ltd. I am assessee as an individual by using firm name ABC ENTERPRISE. The good is sold through truck which is owned by me ( not a transport business as I purchase goods in my name and sold goods in my firm name paying vat). Yearly sale is rs 9900000 including vat and income rs1800000. Now my wife also own another truck in her name and sell goods purchased by her to same XYZ Pvt ltd. by using firm name ABC ENTERPRISE ( different vat reg no.) she is having another bank account with firm name of abc enterprise .Her turnover and income is also same as above. Futher cheque given by Xyz pvt ltd is of lumpsum amount ( not exceeding bills kept by both the party ) and on cheque it is written abc enterprise and cheques received by us is deposited in sometime in her account or in my account. My question is can both file return as per 44AD @ 8% each . Is AO has any power to club the turnover of both of us. Also to ask that by excess income rs 1008000( 1800000-792000) each on which no tax is paid I purchase any property, will that be consider from white money. And can i now do addition in same above business by my huf ( each party ie myself , wife and my huf has enough their own earned white capital )

Sir, really its very useful article. Thanku for the same sir.

Thanks sir your article is very useful for a Fresher CA who is in practice.Please carry on.

thanks very much sir for this article. can i get much more from u on income tax matters. i am a fresher

For commission earned by insurance agent as per circular No. 648 dt. 30.03.1993 : 201 ITR (Sta) deduction for expenses are allowed at prescribed rate only if the gross commission is less than 60000/- in article it is said that ACTIVITY OF INSURANCE AGENT IS HELD AS BUSINESS, as such is eligible and is covered u/s. 44AD. If the commission income is Rs. 10,000,00/- the net profit u/s. 4AD will be 80000/- but it is not as per the above circular under the circumstances whether income from LIC commission can be declared u/s. 44AD? kindly reply.

44AD(6) says  “Shall not apply to — : (i) a person ……(ii) a person……. (iii) a person …..” This means this section as a whole shall not apply to a person who is covered under (i) or (ii) or (iii). If a business man has commission income as well as eligible business income he will not be entitled to claim benefits under sec 44AD because he ( such ” a person ” ) will be covered under sub section(6) (i) (ii) and (iii) whci bars the “person” and not the “business” Kindly clarify and give your views.

I really appreciate the hard work done to elaborate complexities of section 44AD seemingly so simple in nature. Can u also give your views as to How Turnover will be calculated in the case of “Futures & Options”. As per ICAI guidance Note on Tax Audit u/s 44AB, it has been clarified that “Turnover” shall be adding the positive & negative margins. That means if there is profit margin of 50,000 & adverse margin of 60,000, the Turnover will be Rs. 1,10,000. Therefore to carry forward the loss, Tax Audit will become mandatory as the profit declared is below 8% of Turnover.

Good articles and very usefull in day to day practice. I give maximum time to get information which is definately available . Exellent job, pl carry on.

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Tourism Ministry to suspend licence of travel agency linked to Genting crash

Sunday, 30 Jun 2024

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KUALA LUMPUR: The Tourism, Arts and Culture Ministry will temporarily suspend the licence of the travel agency involved in the Genting Highlands bus crash if investigations reveal the company failed to comply with standard operating procedures.

Minister Datuk Seri Tiong King Sing said a comprehensive investigation is underway, including on the travel agency and its subsidiary, to identify any breach of SOPs.

"If the investigation finds that they (the travel agency) are at fault, their licence will be revoked immediately,” he told a press conference after visiting the crash victims at Kuala Lumpur Hospital this morning, along with Chinese Ambassador to Malaysia Ouyang Yujing.

Eight victims are currently receiving treatment at the hospital and are reported to be in stable condition.

In the incident at about 11am on Saturday (June 29), two Chinese nationals were killed while several others were injured when the tour bus skidded and hit the road divider at KM16.5 of Jalan Turun Genting Highlands on its way to the federal capital.

Tiong further said that a special meeting involving his ministry, the Transport Ministry and the Road Transport Department is scheduled for Tuesday to discuss the probe.

"I want to seek explanations from both parties because based on complaints received, the tourists had to change buses three times during their six-day trip.

"This suggests that the buses are not well-maintained, including issues with air-conditioning and unusual noises,” he said.- Bernama

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Tags / Keywords:  crash , bus , Genting Highlands , Tiong King Sing

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Section 44ADA – Presumptive Tax Scheme for Professionals

Updated on : Jun 5th, 2024

A scheme for presumptive taxation was introduced under section 44ADA from the FY 2016-17.

Section 44ADA provides a simple method of taxation for small professionals. Section 44ADA offers a scheme of presumptive taxation of profits and gains arising from professions mentioned under Section 44AA(1) of the Income Tax Act, 1961.

The benefit of section 44ADA can be taken only by those specified professionals whose annual gross receipts are under Rs 75 lakhs (w.e.f.  01.04.2024, erstwhile limit was Rs 50 lakh). 

Budget 2023 Update

The Budget 2023 revised presumptive taxation limits under Sec 44AD and Sec 44ADA from FY 2023-24 (AY 2024-25) as follows:

*The increase in limits is subject to a condition that the 95% of the receipts must be through online modes.

What is Section 44ADA of the Income Tax Act?

Section 44ADA is a special provision for calculating the profits and gains of small professionals in certain circumstances. Section 44ADA was introduced to extend the scheme of simplified presumptive taxation to specified professionals. Earlier, the presumptive scheme of tax was applicable only to small businesses.  The presumptive scheme of taxation reduces the compliance burden on small professions and facilitates ease of doing business. Under the presumptive scheme of taxation, profits are presumed at 50% of the gross receipts.

Assessees eligible for the Section 44ADA

The following Indian assessees are eligible:

• Individuals
• Partnership firms (note that limited liability partnerships are not eligible)

Who is eligible for Section 44ADA?

Professionals engaged in the following professions are eligible:

• Interior decorations
• Technical consulting
• Engineering
• Architecture
• Movie artists include producers, editors, actors, directors, music directors, art directors, dance directors, cameramen, singers, lyricists, story writers, screenplay or dialogue writers and costume designers
• Authorised representative means a person who represents another person for a fee before a tribunal or any authority constituted under any law. It does not include an employee of the person so represented or a person who is carrying on the profession of accountancy
• Any other notified professionals

Presumptive Income Calculation under Section 44ADA of Income Tax

The following conditions must be met to choose the Presumptive Taxation Scheme under Section 44ADA of the Income Tax Act:

• The profession's gross receipts should be less than or equivalent to INR 50 lakh. 
• The limit is increased to INR 75 lakhs if the total amount received in cash does not exceed 5 percent of the total gross receipts of such previous year.
• In the ITR, the taxpayer must record 50% or more of the gross receipts as income.

Illustration 1: Mr Ram is a freelance interior decorator. His total receipts for the financial year 2023- 24 are Rs 30 lakh. His annual expenses are Rs 10 lakh towards rent, conveyance, telephone, travelling etc.

Here, we can compare his taxable income under normal provisions and the presumptive scheme as below:

Under normal provisions

Under Presumptive scheme

In the above case, the tax is paid on 50% of gross receipts. Hence, Ram can opt to pay tax under the presumptive scheme of taxation under section 44ADA. 

Illustration 2: 

Geeth is a medical practitioner, whose total gross receipts are Rs. 55,00,000, and cash receipts are Rs. 2,50,000. The yearly expense of hers is Rs. 9,00,000.

Here’s how we can compute the net income chargeable to tax under the presumptive taxation scheme.

In the above illustration, the total receipt is below the revised/increased presumptive limit of Rs. 75 lakh and the cash receipt is less than 5% of the total receipts. Hence the professional can opt for the presumptive taxation scheme under section 44ADA and the taxable income chargeable is 50% of the total receipts. 

Benefits of Section 44ADA

By following Section 44ADA, an assessee would get the following benefits:

• No need to maintain books required under  Section 44AA
• No requirement to have accounts audited under  Section 44AB

When shall an assessee maintain books and get the accounts audited?

If an assessee meets the following criteria, then they must maintain books and get accounts audited under section 44AB:

• Gross receipts is more than Rs.50 lakshs (Rs. 75 lakhs if the total amount received in cash does not exceed 5 percent of the total gross receipts of such previous year) in the previous year.
• Income from the profession is offered at a lower rate than 50% of the gross receipts. 
• The total income of the assessee is more than the basic exemption

Implications of choosing Section 44ADA

All deductions for business expenses are deemed to have been allowed. Once profits are taxed at 50% of the gross receipts, the balance of 50% is deemed to be allowed towards all the business expenses of the assessee.  Business expenses may include consumables, cost of services taken from another professional, daily expenses, books, stationery, telephone charges, depreciation on assets (laptop, vehicle, printer etc.) and any other expense incurred to carry on the profession.

The written down value (WDV) of assets for tax purposes shall be calculated as of the depreciation has been allowed each year. This WDV would be the value of the asset for tax purposes in a case where the asset is sold later by the assessee.

Frequently Asked Questions

Professionals mentioned in the section can pay tax on their gross receipts under section 44ADA, and they can opt for this scheme only if their total income does not exceed Rs.75 lakhs under the revised /increased limit. 

Taxpayers can file return in the ITR -4 form (Sugam)  for those who opt for the presumptive taxation under section 44AD, 44ADA, and 44AE.

Despite opting for presumptive scheme under section 44ADA, taxpayer can claim section 80 tax saving deductions and investments.

Deduction of remuneration is not allowed if the firms income are taxed under the presumptive taxation section 44AD or 44ADA.

After opting for presumptive taxation, if your income goes beyond the set limit then you have to get your books audited.

If the professionals claim their income to be less than 50% of their gross total receipts and also if they exceed the set limit, then they cannot opt for presumptive taxation.

As a discouraging provision the professionals who opt for 44ADA presumptive taxation have to be followed up to 5 years compulsorily.

In accordance with Section 44ADA, a freelancer who has selected the Presumptive Scheme is required to declare 50% of their gross income as income. It is feasible to report profit as a predetermined proportion of receipts without maintaining any accounting records. The freelancer is, therefore unable to submit any additional expense claims. However, he or she is still eligible to deduct Chapter VI-A expenses for things like  mediclaim premiums and LIC subscriptions.

Yes. If you owe more than INR 10,000 in taxes for the fiscal year, you have to pay advance tax. Instead of making four payments in normal circumstances, you must pay advance tax on or before March 15th if you have selected a presumptive taxation system under section 44AD or 44ADA. However, you will be required to pay interest under Sections 234B and 234C if you do not pay advance tax by the fiscal year's 15th of March.

Yes, an individual can use Section 44AD and Section 44ADA simultaneously if he/she has income from both professions as well as business.

About the Author

Mohammed S Chokhawala

I'm a chartered accountant, well-versed in the ins and outs of income tax, GST, and keeping the books balanced. Numbers are my thing, I can sift through financial statements and tax codes with the best of them. But there's another side to me – a side that thrives on words, not figures. Read more

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44AD for Travel agents

CMA Sajin Odupara (Practicing Cost Accountant)   (41 Points)

 3 Replies

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (164671 Points) --> Replied 02 June 2018

No. As commission based income......

Online classes for CA CS CMA. Professional courses for GST, Tally, Others & Books

CMA Sajin Odupara (Practicing Cost Accountant)   (41 Points) --> Replied 02 June 2018

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (164671 Points) --> Replied 26 July 2018

Is it possible to subtract commission from the trade?  Tickets directly issued by  you? No agency.

(& mind it, minimum 6% margin on the turnover !!!)

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US Workplace Safety Agency Proposes Protections From Extreme Heat

Workers take a break in the shade in Times Square during hot weather in New York City, U.S., June 27, 2024. REUTERS/Adam Gray

By Daniel Wiessner

(Reuters) - The Biden administration on Tuesday unveiled a long-awaited proposal that would require many U.S. employers to protect 36 million workers from extreme heat.

The proposed rule from the U.S. Occupational Safety and Health Administration (OSHA), which enforces workplace safety laws, would require employers to provide workers with water and shaded or air-conditioned areas to take breaks when temperatures at indoor or outdoor work sites reach 80 degrees Fahrenheit (27 degrees Celsius).

At 90 F, workers would be guaranteed 15-minute breaks every two hours and employers would be required to monitor workers for heat-related illness. When businesses hire new employees, the rule would mandate that their workload gradually increases to allow them to adjust to high temperatures. 

Private employers already have a "general duty" to maintain safe workplaces, which can include addressing heat-related hazards. But Tuesday's proposal would for the first time establish specific protections from heat exposure, opening the door for OSHA to fine employers who flout the rule.

If finalized, the regulation will almost certainly face lawsuits from businesses and trade groups. Those challenges could be bolstered by a ruling issued last week by the U.S. Supreme Court eliminating the deference that courts owed to agency rulemaking. 

OSHA, part of the U.S. Department of Labor, said that the proposed rule was designed to reduce work-related deaths and injuries caused by prolonged exposure to high temperatures. 

"Workers all over the country are passing out, suffering heat stroke and dying from heat exposure from just doing their jobs, and something must be done to protect them,” said Douglas Parker, OSHA's head. 

Advocates have for years called on OSHA to address heat hazards. The agency first said it was working on the rule in 2021. 

Heat exposure on the job has killed more than 1,000 U.S. workers since 1992. From 2011 to 2020, there were nearly 34,000 cases where heat-related injuries caused employees to miss work, according to the U.S. Bureau of Labor Statistics. 

Several U.S. cities experienced record-breaking heat in June, and the release of the proposed rule on Tuesday coincided with the beginning of a heat wave in California and other West Coast states. Many climate scientists have predicted that 2024 will be the hottest year on record. 

The OSHA proposal does not apply to "sedentary" or remote workers, emergency-response workers, or employees at indoor job sites where temperatures are kept below 80 F. OSHA rules do not apply to government employers. 

(Reporting by Daniel Wiessner in Albany, New York; Editing by Rod Nickel)

Copyright 2024 Thomson Reuters .

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TSA at Philadelphia International Airport is prepared for busiest summer travel season ever

PHILADELPHIA --The Transportation Security Administration (TSA) is prepared for the highest passenger volumes the agency has seen at airport security checkpoints nationwide during this summer’s travel season, including at Philadelphia International Airport.

Since mid-May, TSA has seen multiple days break into the top 10 busiest days in the agency’s 22-year history. Typically, TSA had been screening approximately 2.5 million people per day nationwide, however since last month, the number of people screened has increased by several hundred thousand per day.

“Here at Philadelphia International Airport (PHL) we also are seeing a jump in checkpoint volume,” said Gerardo Spero, TSA’s Federal Security Director for Philadelphia International Airport. “Travel volume expected out of Philadelphia is expected to be high. We expect to screen 8.3 percent more individuals at our checkpoints this summer compared to last summer. Our teams have been in close coordination with airport, airline and travel partners, and we ready to handle this summer’s increased travel volumes as we approach the July 4th holiday,” he said.

On a typical day, TSA screens about 33,400 people at Philadelphia, but since Memorial Day Weekend, closer to 40,000 people are coming through the security checkpoints with the busiest times of the day from 4 to 9 a.m. and again from noon to 5 p.m.

“Now more than ever it is vital to give yourself plenty of time to park or return a rental car, check in with your airline to check bags and prepare for the security checkpoint. If you find yourself in a checkpoint line, travelers can save time by removing items from their pockets and placing them in a carry-on bag, instead of putting items directly into bins at the conveyor belt,” Spero said.

“The best advice that I can offer is to get to the airport well before your ticketed departure time,” Spero said. “We ask that the travelling public do their part in efficient checkpoint screening by arriving to the airport at least two hours prior to their scheduled flight departure and know what they can – and cannot pack – in their carry-on luggage,” he said.

TSA is continuing to modernize airport security checkpoints across the country with a focus on enhanced detection methods to best secure the aviation system. If individuals have not flown since last summer, they are likely to encounter a second generation of credential authentication technology (CAT) units at our travel document checking podium at Philadelphia and at other airports so they will want to listen for guidance from our TSA officers.

These units ensure the authenticity of a passenger’s ID and match the face of the passenger with the face on the ID by snapping a photo of the person who is presenting the ID. After the CAT unit validates the ID, the photo is deleted and travelers who prefer not to have their photo taken may opt out and the TSA officer will validate the traveler’s ID without the use of a photo.

It is important for travelers to come to the airport prepared to go through the security screening process. Passengers need to make sure that there are no prohibited items among their carry-on items. Prohibited items will result in a need for our officers to open and inspect a bag to determine what triggered the alarm. This process takes a few minutes and will slow down someone’s trip through the checkpoint.

When packing, it is recommended to start to pack with an empty bag, so that travelers are well aware of the contents of their bags. Prior to packing that empty bag, individuals can check TSA’s “What Can I Bring?” tool to know what is prohibited. Individuals who are heading to the beach, may wonder how to pack their sunscreen. Any liquids, sunscreen containers and alcohol over 3.4 ounces must be packed in a checked bag. Liquids, aerosols, gels, creams and pastes are allowed in carry-on bags as long as each item is 3.4 ounces or less and placed in one quart-sized bag . Each passenger is limited to one quart-size bag of liquids, aerosols, gels, creams and pastes.

It is important for individuals who own firearms to remember that they are prohibited to pass through security checkpoints, even if a passenger has a concealed carry permit or is in a constitutional carry jurisdiction. Passengers may travel with a firearm, but it must be secured in the passenger’s checked baggage; packed unloaded; locked in a hard-sided case; and declared to the airline when checking in at the airline ticket counter. If a passenger brings a firearm to the security checkpoint on their person or in their carry-on luggage, TSA will contact local law enforcement to safely unload and take possession of the firearm. Law enforcement may also arrest or cite the passenger, depending on local law. TSA may impose a civil penalty up to $15,000 when weapons are intercepted, and passengers will lose TSA PreCheck® eligibility.

TSA PreCheck® members should make sure that their known traveler number (KTN) is in their airline  reservation. It is essential that airline reservations have the passenger’s correct KTN, full name and date of birth so they can receive the program’s benefits. Those who fly with multiple airlines should ensure their KTN is updated in each of their airline profiles every time they travel. TSA PreCheck passengers are low-risk travelers who do not need to remove shoes, belts, 3-1-1 liquids, food, laptops and light jackets at the TSA checkpoint. TSA’s wait time standards for TSA PreCheck lanes are under 10 minutes and less than 30 minutes for standard lanes. Travelers may visit https://www.tsa.gov/precheck for more information about enrolling or renewing in TSA PreCheck and to find enrollment locations and pricing information for all TSA PreCheck enrollment providers.

“Our officers along with all frontline airport and airline employees and local law enforcement, are working together to ensure safe and secure travel. Consider offering them a kind word of thanks,” Spero said. 

TSA also reminds travelers that starting on May 7, 2025, if you plan to use your state-issued ID or driver’s license to fly within the U.S., make sure you have a REAL ID or another acceptable form of ID. If you are not sure if you have a REAL ID, check with the Pennsylvania Department of Transportation. For questions on acceptable IDs, visit TSA’s web site. “Put REAL ID on your summer to do list,” Johnson recommended.

Travelers can contact TSA with questions may contact TSA by sending a text directly to 275-872 (“AskTSA”) on any mobile device or over social media by sending a message to @AskTSA on X or Facebook Messenger. An automated virtual assistant is available 24/7 to answer commonly asked questions, and AskTSA staff are available 365 days a year from 8 a.m. to 6 p.m. ET for more complicated questions. Travelers may also reach the TSA Contact Center at 866-289-9673. An automated service is available 24/7.

Passengers who need additional assistance through security screening may request a TSA Passenger Support Specialist (PSS). A PSS is a TSA officer who has received specialized training, including how to effectively assist and communicate with individuals with disabilities, medical conditions or those who need additional screening assistance. Individuals should request passenger assistance at least 72 hours in advance by contacting our TSA Cares passenger support line at (855) 787-2227. Live assistance is available weekdays from 8 a.m. to 11 p.m. ET, or weekends and holidays from 9 a.m. to 8 p.m. ET.

TSA encourages all passengers to remain vigilant. If You See Something. Say Something®.

FEMA wants travelers to know how to prepare and stay safe before, during, and after disasters and emergencies— especially while traveling. Hurricanes, flooding, wildfires and extreme heat are common during this time of the year depending on the destination. By understanding the unique hazards in places travelers may go, they can better prepare themselves and their loved ones.  There are several things travelers can do to help them and their families stay safe. They can download the FEMA App to receive preparedness tips and weather alerts for up to five different locations; know evacuation zones and evacuation routes so you know how to respond and stay safe during an evacuation order by checking with state and county emergency management offices to learn about local evacuation zones. And they can stay informed by monitoring trusted sources such as local emergency management agencies and the National Weather Service for updates on threat conditions, shelter locations and other important safety information.