Advance Learning on Section 44AD (Practical) · Advance Learning on Section 44AD (Practical) In this advance learning session we will learn various practical aspects of the provisions

Advance Learning on Section 44AD (Practical)

In this advance learning session we will learn various practical aspects of the provisions of

section 44AD.

Applicability of the scheme

Illustration

Mr. Raja is running a proprietary concern under the name of Raja Enterprise. The turnover of

his firm during the previous year 2012-13 was Rs. 84,00,000. He wants to adopt the

provisions of section 44AD and to declare income as per the presumptive taxation scheme.

Can he adopt these provisions even if he is an individual?

**

The provisions of section 44AD can be adopted by such resident assessee who is an

Individual, Hindu Undivided Family and Partnership Firm but not Limited Liability

Partnership Firm. Thus, Mr. Raja being an individual if satisfies the other criteria of the

scheme can adopt the provisions of section 44AD and can declare income on presumptive

basis.

Illustration

Raja HUF, whose Karta is Mr. Raja, is running a departmental store. The turnover of the

store during the previous year 2012-13 was Rs. 84,25,252. The HUF wants to adopt the


Can it adopt these provisions even if it is an HUF?

**



Partnership Firm. Thus, being an HUF if it satisfies the other criteria of the scheme can adopt

the provisions of section 44AD and can declare income on presumptive basis.

Illustration

SM Enterprise, a partnership firm whose partners are Mr. Soham and Mr. Mohan is running a

departmental store. Mr. Soham is also running his proprietary firm. SM Enterprise as well as

Mr. Soham wants to adopt the presumptive taxation scheme of section 44AD. In this case can

the firm as well as Mr. Soham, both adopt the provisions of section 44AD and declare income

as per the presumptive taxation scheme?

**



Partnership Firm. There is no restriction in adopting the provisions of section 44AD by both -

a partnership firm as well as the partners. Hence, in this case, both, i.e., SM Enterprise and

Mr. Soham can adopt the provisions of section 44AD if they satisfy the other criteria of the

scheme and can declare income on presumptive basis.

Scheme of computation of income

Illustration

Mr. Raja is running a garment factory. The turnover of the factory during the previous year

2012-13 was Rs. 1,84,00,000. Can he adopt the provisions of presumptive scheme of section

44AD in respect of this business?

**

(As amended by Finance Act, 2013)source : www.trpscheme.com

The presumptive taxation scheme under the provisions of section 44AD can be opted for by

the eligible assessee who is engaged in any business (except the business of plying, hiring or

leasing goods carriages referred to in section 44AE and except by an assessee who is engaged

in any profession as prescribed under section 44AA or is running agency business or is

earning income in the nature of commission or brokerage), whose turnover or gross receipts

from such business do not exceed the limit of audit prescribed under section 44AB (i.e., Rs.

60,00,000 for the previous year 2011-12 and Rs. 1,00,00,000 from the previous year 2012-

13).

In this case the turnover of Mr. Raja during the previous year 2012-13 was Rs. 1,84,00,000

which exceeds the limit of Rs. 1,00,00,000 and, hence, he cannot adopt the provisions of

section 44AD.

Illustration

Mr. Kumar is a commission agent and is earning income in the nature of commission. His

gross commission during the previous year 2012-13 was Rs. 25,84,000. He wants to adopt the

provisions of section 44AD in respect of this business. In this case what will be his income as

per the provisions of section 44AD?

**



leasing of goods carriages referred to in section 44AE), whose turnover or gross receipts from

such business do not exceed the limit of audit prescribed under section 44AB (i.e., Rs.


13). Moreover, the provisions of section 44AD cannot be adopted by an assessee who is

engaged in any profession as prescribed under section 44AA or is carrying on an agency

business or is earning income in the nature of commission or brokerage.

In this case Mr. Kumar is earning income in the nature of commission and, hence, he cannot

adopt the provisions of section 44AD.

Illustration

Mr. Kapoor is running a factory. The turnover of the factory during the previous year 2012-

13 was Rs. 98,84,252. He wants to adopt the provisions of section 44AD in respect of this

business. In this case what will be his income as per the provisions of section 44AD?

**

As per the provisions of section 44AD, income will be computed on an estimated basis @ 8%

of turnover or gross receipts of the eligible business for the previous year. In the present case,

Mr. Kapoor is running a factory whose turnover during the previous year 2012-13 was Rs.

98,84,252 and, hence, his income as per the provisions of section 44AD will come to Rs.

7,90,740 (i.e., Rs. 98,84,252 * 8%).

Illustration

Miss Khushali is a doctor. She is doing practice in her own clinic. The gross receipts of the

clinic during the previous year 2012-13 were Rs. 1,25,52,252. She wants to adopt the

provisions of section 44AD in respect of her clinic. In this case what will be her income as


**



leasing of goods carriages referred to in section 44AE), whose turnover or gross receipts from







In this case Miss Khushali is a doctor (i.e., she is engaged in one of professions prescribed

under section 44AA) and, hence, she cannot adopt the provisions of section 44AD.

Provisions relating to various allowances/disallowances

Illustration

Mr. Krunal is running a medical store in his own premises. The turnover of the store during

the previous year 2012-13 was Rs. 52,84,848 and he declared income as per the provisions of

section 44AD. After computing the income @ 8% of such turnover of Rs. 52,84,848, he

wants to claim further deduction on account of following items:

Salary paid to accountant: Rs. 84,000

Expenditure on account of insurance of shop: Rs. 25,200

Depreciation on shop building: Rs. 1,84,000

Depreciation on computer system: Rs. 48,400

Can he claim deduction on account of above expenditure?

**

Income computed as per section 44AD (i.e., @ 8% of turnover or gross receipts of the

eligible business, for the previous year) will be net income for the business covered under this

scheme. From the net income computed as above, an assessee is not permitted to claim any

deduction under sections 30 to 38 (including depreciation or unabsorbed depreciation).

Thus, in this case Mr. Krunal cannot claim any further deduction on account of any of the

above discussed expenditure from the net income computed as per the provisions of section

44AD.

Illustration

SM Corporation, a partnership firm, is running a Color Dying Press in its own premises. The

turnover of the press during the previous year 2012-13 was Rs. 84,48,848 and it declared

income as per the provisions of section 44AD. After computing the income @ 8% of such

turnover of Rs. 84,48,848, the firm wants to claim further deduction on account of following

items:


Expenditure on account of insurance of press building: Rs. 25,200

Depreciation on press building: Rs. 1,84,000

Depreciation on computer: Rs. 48,400

Remuneration paid to its partners: 84,000

Can the firm claim deduction on account of above expenditure?

**

As per the provisions of section 44AD, from the net income computed at the prescribed rate,

i.e., @ 8% of turnover or gross receipts of the eligible business, an assessee is not permitted

to claim any deduction under sections 30 to 38 (including depreciation or unabsorbed

depreciation) from such income. Thus, in this case the firm cannot claim any further


deduction on account of any of the above discussed expenditure (except remuneration paid to

its partners) from the net income computed as per the provisions of section 44AD.

In case of an assessee, being a partnership firm, from the net income computed as per the

provisions of section 44AD, further deduction on account of remuneration and interest paid to

its partners within the limit specified under section 40(b) is allowed. Thus, in this case the

firm can claim further deduction on account of remuneration paid to its partners within the

limit specified under section 40(b).

Illustration

Essem Corporation, a partnership firm, is running a Color Dying Press in its own premises.

The turnover of the press during the previous year 2012-13 was Rs. 84,48,848 and it declared



items:




Interest on capital paid to its partners @ 12%: Rs. 25,252


**






its partners and interest on capital paid to its partners) from the net income computed as per

the provisions of section 44AD.




firm can claim further deduction on account of remuneration and interest on capital paid to its

partners within the limit specified under section 40(b).

Manner of computation of WDV of depreciable assets

Illustration

Mr. Amar is running proprietary firm under the name of Amar Enterprise in the premises

owned by him. The turnover of the firm during the previous year 2012-13 was Rs. 52,25,848

and he declared income as per the provisions of section 44AD. After computing the income

@ 8% of the turnover of Rs. 52,25,848, he wants to claim further deduction on account of

depreciation on the shop premises amounting to Rs. 84,252. Can he do so as per the

provisions of section 44AD?

**


i.e.,@ 8% of the turnover or gross receipts from the eligible business, an assessee is not

permitted to claim any deduction under sections 30 to 38 (including depreciation or

unabsorbed depreciation) from such income. Thus, in this case Mr. Amar cannot claim any

further deduction on account of depreciation amounting to Rs. 84,252 from the net income

computed as per the provisions of section 44AD.


Illustration

SM Corporation, a partnership firm is running a factory. The turnover of the firm during the

previous year 2012-13 was Rs. 99,84,252 and it declared income as per the provisions of

section 44AD. The opening WDV of the block of depreciable asset (machinery @ 15%) as on

1-4-2012 was Rs. 8,25,252. Since the firm has opted for the provisions of section 44AD for

the year 2012-13 it has not claimed depreciation. In this case, if in the next year it does not

opt for section 44AD, what will be the WDV on which the firm can claim depreciation?

**

As per the provisions of section 44AD, from the income computed as per the provisions of

section 44AD, further deduction on account of depreciation is not available. However, the

WDV of any asset used in the business covered under the scheme of section 44AD shall be

calculated as if depreciation as per section 32 is claimed and allowed. Thus, even though no

depreciation is claimed by the firm, yet for purpose of computation of the WDV of the asset,

depreciation will be deducted from the value of the block. The WDV eligible for depreciation

will be computed as follows:

Particulars Amount(Rs)

Opening WDV as on 1-4-2012 8,25,252

(-) Depreciation @ 15% for the year 2012-13 1,23,788

Closing WDV for the year 2012-13 7,01,464

WDV eligible for depreciation for the year 2013-14 7,01,464

Provisions relating to maintenance of books of account

Illustration

Mr. Kapoor is running a medical store. The turnover of the store during the previous year

2012-13 was Rs. 60,52,252 and he declared income as per the provisions of section 44AD. In

this case will he be liable to maintain the books of account in respect of aforesaid business?

**

As per the provisions of section 44AD, an assessee who adopts the provisions of section

44AD, is not required to maintain books of account as per section 44AA. However, the relief

is available only in respect of business covered by the provisions of section 44AD and not in

respect of any other business. Thus, if Mr. Kapoor owns any other business, then in respect of

such business the provisions of section 44AA in respect of maintenance of books of account

will apply.

Illustration

Mr. Jay is an interior decorator. His gross receipts from this profession during the previous

year 2012-13 were Rs. 84,48,848. He wants to declare income as per the provisions of section

44AD. In this case will he be liable to maintain the books of account in respect of aforesaid

profession?

**


44AD, is not required to maintain books of account as per section 44AA (applicable only for

business covered by this section). The presumptive taxation scheme under these provisions

can be opted for by the eligible assessee who is engaged in any business (except the business

of plying, hiring or leasing of goods carriages referred to in section 44AE), whose turnover or

gross receipts from such business do not exceed the limit of audit prescribed under section


44AB (i.e., Rs. 60,00,000 for the previous year 2011-12 and Rs. 1,00,00,000 from the

previous year 2012-13). Moreover, the provisions of section 44AD cannot be adopted by an

assessee who is engaged in any profession prescribed under section 44AA or is carrying on

an agency business or is earning income in the nature of commission or brokerage.

In this case, Mr. Jay is engaged in one of the professions prescribed under section 44AA and,

hence, he is not eligible to adopt the provisions of section 44AD and the provisions of section

44AA relating to maintenance of books of account will apply to him and he will be liable to

maintain the books of account as specified under section 44AA.

Illustration

Mr. Kaushal is running a provision shop. The turnover of the shop during the previous year

2012-13 was Rs. 25,84,848. He wants to adopt the provisions of section 44AD for the above

business. Apart from the business of running a provision shop, he is also engaged in the

business of plying, hiring or leasing goods carriages. He owns 5 heavy goods vehicles. His

actual income from the goods transportation business is Rs. 3,000 per month (i.e., less than

Rs. 5,000 per month or part thereof) per heavy goods vehicle and he wants to declare his

actual income of Rs. 3,000 for this business. In this case will he be liable to maintain the

books of account in respect of aforesaid businesses?

**


44AD, is not required to maintain books of account as per section 44AA. It should be noted

that the relief is available only in respect of business covered by the provisions of section

44AD and not in respect of any other business. Thus, in this case he will not be liable to

maintain books of account in respect of business covered under section 44AD i.e., business of

provision shop but in respect of business of plying, hiring or leasing goods carriages, he will

be liable to maintain books of account as provided under section 44AA.

Declaration of lower income/Higher income

Illustration

Mr. Rohan is running a medical store. The turnover of the store during the previous year

2012-13 was Rs. 52,25,252. He wants to adopt the provisions of section 44AD. However, his

actual income from this business is Rs. 3,65,768 only which is less than Rs. 4,18,020 (i.e.,

Rs. 52,25,252 * 8%). In this case can he declare his actual income of Rs. 3,65,768 in respect

of his business of medical store?

**

As per the provisions of section 44AD, if the actual income from the business covered under

section 44AD is lower than the income prescribed under the presumptive scheme, then the

assessee can declare income from aforesaid business at a lower rate (i.e., at less than 8%).

Thus, in this case Mr. Rohan can declare lower income. However, in this case he has to

maintain the books of account prescribed under section 44AA and has to get such books of

account audited, since his actual income exceeds the exemption limit (i.e., Rs. 2,00,000).

Illustration

Mr. Rahul is running a provision shop. The turnover of the shop during the previous year

2012-13 was Rs. 58,84,848. However, his actual income is Rs. 5,29,636 which is higher than

Rs. 4,70,788 (i.e., Rs. 58,84,848 * 8%). In this case can he declare his actual income of Rs.

5,29,636 which is higher than the limit prescribed under section 44AD?

**



section 44AD is higher than the income prescribed under the presumptive scheme, then the

assessee has to declare such higher income from aforesaid business. Thus, in this case Mr.

Rahul can declare higher income.

Applicability of Provisions of Advance Tax

Illustration

Mr. Kumar is running a garment factory. The turnover of the factory for the previous year

2012-13 amounted to Rs. 84,25,848. He adopted the provisions of section 44AD and declared

income @ 8% of the turnover. Apart from income from garment factory, he also earned

brokerage of Rs. 3,84,252. In this case will he be liable to pay advance tax in respect of his

business of factory as well as his brokerage income?

**

An assessee opting for the presumptive taxation scheme of section 44AD is not liable to pay

advance tax in respect of business covered under section 44AD. In this case, he will not be

liable to pay advance tax in respect of income from garment factory, even though the tax

liability in respect of income from the garment factory exceeds Rs. 10,000. However, as

regards brokerage income, he will be liable to pay advance tax, since the tax liability on

brokerage income exceeds Rs. 10,000.


FAQs

1. By whom the provisions relating to presumptive taxation scheme of section 44AD are

adopted?

Following illustrations will explain the provisions relating to applicability of the presumptive

taxation scheme of section 44AD.

Illustration

Mr. Raja is running a proprietary concern under the name of Raja Enterprise. The turnover of

his firm during the previous year 2012-13 was Rs. 84,00,000. He wants to adopt the

provisions of section 44AD and wants to declare income as per the presumptive taxation

scheme. Can he adopt these provisions even if he is an individual?

**



Partnership Firm. Thus, Mr. Raja being an individual if satisfies the other criteria of the

scheme can adopt the provisions of section 44AD and can declare income on presumptive

basis.

Illustration

Raja HUF, whose Karta is Mr. Raja, is running a departmental store. The turnover of the

store during the previous year 2012-13 was Rs. 84,25,252. The HUF wants to adopt the


Can it adopt these provisions even if it is an HUF?

**



Partnership Firm. Thus, Raja HUF, being an HUF if satisfies the other criteria of the scheme

can adopt the provisions of section 44AD and can declare income on presumptive basis.

Illustration

SM Enterprise, a partnership firm whose partners are Mr. Soham and Mr. Mohan, is running

a departmental store. Mr. Soham is also running his proprietary firm. SM Enterprise as well

as Mr. Soham wants to adopt the presumptive taxation scheme of section 44AD. In this case

can the firm as well as Mr. Soham, both adopt the provisions of section 44AD and declare

income as per the presumptive taxation scheme?

**



Partnership Firm. There is no restriction on adopting the provisions of section 44AD by both,

a partnership firm as well as the partners. Hence, in this case, both, i.e., SM Enterprise and

Mr. Soham can adopt the provisions of section 44AD if they satisfy the other criteria of the

scheme and can declare income on presumptive basis.

2. What are the provisions relating to computation of income under the presumptive

taxation scheme of section 44AD?

Following illustrations will explain the provisions relating to computation of income under

the presumptive taxation scheme of section 44AD.

Illustration


Mr. Raja is running a garment factory. The turnover of the factory during the previous year

2012-13 was Rs. 1,84,00,000. Can he adopt the provisions of presumptive scheme of section


**



leasing goods carriages referred to in section 44AE and except by the assessee who is

engaged in any profession as prescribed under section 44AA or is running agency business or

is earning income in the nature of commission or brokerage), whose turnover or gross

receipts from such business do not exceed the limit of audit prescribed under section 44AB

(i.e., Rs. 60,00,000 for the previous year 2011-12 and Rs. 1,00,00,000 from the previous year

2012-13).

In this case the turnover of Mr. Raja during the previous year 2012-13 was Rs. 1,84,00,000

which exceeds the limit of Rs. 1,00,00,000 and, hence, he cannot adopt the provisions of

section 44AD.

Illustration

Mr. Kumar is a commission agent and earning income in the nature of commission. His gross

commission during the previous year 2012-13 was Rs. 25,84,000. He wants to adopt the

provisions of section 44AD in respect of this business. In this case what will be his income as


**



leasing goods carriages referred to in section 44AE), whose turnover or gross receipts from






In this case Mr. Kumar is earning income in the nature of commission and, hence, he cannot

adopt the provisions of section 44AD.

Illustration

Mr. Kapoor is running a factory. The turnover of the factory during the previous year 2012-

13 was Rs. 98,84,252. He wants to adopt the provisions of section 44AD in respect of this

business. In this case what will be his income as per the provisions of section 44AD?

**

As per the provisions of section 44AD, income will be computed on an estimated basis @ 8%

of turnover or gross receipts of the eligible business for the previous year. In the present case,

Mr. Kapoor is running a factory whose turnover during the previous year 2012-13 was Rs.

98,84,252 and, hence, his income as per the provisions of section 44AD will come to Rs.

7,90,740 (i.e., Rs. 98,84,252 * 8%).

Illustration

Miss Khushali is a doctor. She is doing practice in her own clinic. The gross receipts of the

clinic during the previous year 2012-13 were Rs. 1,25,52,252. She wants to adopt the

provisions of section 44AD in respect of her clinic. In this case what will be her income as


**




leasing goods carriages referred to in section 44AE), whose turnover or gross receipts from






In this case, Miss Khushali is a doctor (i.e., she is engaged in one of professions prescribed

under section 44AA) and, hence, she cannot adopt the provisions of section 44AD.

3. What are the provisions relating to various allowances/disallowances under the

presumptive taxation scheme of section 44AD?

Following illustrations will explain the provisions relating to various allowances

/disallowances under the presumptive taxation scheme of section 44AD.

Illustration

Mr. Krunal is running a medical store in his own premises. The turnover of the store during

the previous year 2012-13 was Rs. 52,84,848. He declared income as per the provisions of

section 44AD. After computing the income @ 8% of such turnover of Rs. 52,84,848, he

wants to claim further deduction on account of following items:


Expenditure on account of insurance of shop: Rs. 25,200

Depreciation on shop building: Rs. 1,84,000

Depreciation on computer system: Rs. 48,400

Can he claim deduction on account of above expenditure?

**

Income computed as per section 44AD (i.e., @ 8% of turnover or gross receipts of the

eligible business for the previous year) will be net income for the business covered under this

scheme. From the net income computed as above, an assessee is not permitted to claim any

deduction under sections 30 to 38 (including depreciation or unabsorbed depreciation).

Thus, in this case Mr. Krunal cannot claim any further deduction on account of any of the

above discussed expenditure from the net income computed as per the provisions of section

44AD.

Illustration

SM Corporation, a partnership firm, is running a Color Dying Press in its own premises. The

turnover of the press during the previous year 2012-13 was Rs. 84,48,848 and it declared



items:


Expenditure on account of insurance of press building: Rs. 25,200






**






its partners) from the net income computed as per the provisions of section 44AD.




firm can claim further deduction on account of remuneration paid to its partners within the

limit specified under section 40(b).

Illustration

Essem Corporation, a partnership firm is running a Color Dying Press in its own premises.

The turnover of the press during the previous year 2012-13 was Rs. 84,48,848. It declared



items:




Interest on capital paid to its partners @ 12%: Rs. 25,252


**






its partners and interest on capital paid to its partners) from the net income computed as per

the provisions of section 44AD.




firm can claim further deduction on account of remuneration and interest on capital paid to its

partners within the limit specified under section 40(b).

4. What is the manner of computation of WDV of depreciable assets under the


Following illustrations will explain the manner of computation of WDV of depreciable assets

under the presumptive taxation scheme of section 44AD.

Illustration

Mr. Amar is running proprietary firm under the name of Amar Enterprise in the premises

owned by him. The turnover of the firm during the previous year 2012-13 was Rs. 52,25,848

and he declared income as per the provisions of section 44AD. After computing the income

@ 8% of the turnover of Rs. 52,25,848, he wants to claim further deduction on account of


depreciation on the shop premises amounting to Rs. 84,252. Can he do so as per the


**


i.e.,@ 8% of the turnover or gross receipts from the eligible business, an assessee is not


unabsorbed depreciation) from such income. Thus, in this case Mr. Amar cannot claim any

further deduction on account of depreciation amounting to Rs. 84,252 from the net income

computed as per the provisions of section 44AD.

Illustration

SM Corporation, a partnership firm, is running a factory. The turnover of the firm during the

previous year 2012-13 was Rs. 99,84,252 and it declared income as per the provisions of

section 44AD. The opening WDV of the block of depreciable asset (machinery @ 15%) as on

1-4-2012 was Rs. 8,25,252. Since the firm has opted for the provisions of section 44AD for

the year 2012-13 it has not claimed depreciation. In this case, if in the next year it does not

opt for section 44AD, what will be the WDV on which the firm can claim depreciation?

**




calculated as if depreciation as per section 32 is claimed and allowed. Thus, even though no


depreciation will be deducted from the value of the block. The WDV eligible for depreciation

will be computed as follows:

Particulars Amount(Rs)

Opening WDV as on 1-4-2012 8,25,252

(-) Depreciation @ 15% for the year 2012-13 1,23,788

Closing WDV for the year 2012-13 7,01,464

WDV eligible for depreciation for the year 2013-14 7,01,464

5. What are the provisions relating to maintenance of books of account under the


Following illustrations will explain the provisions relating to maintenance of books of

account under the presumptive taxation scheme of section 44AD.

Illustration

Mr. Kapoor is running a medical store. The turnover of the store during the previous year

2012-13 was Rs. 60,52,252 and he declared income as per the provisions of section 44AD. In

this case will he be liable to maintain the books of account in respect of aforesaid business?

**


44AD, is not required to maintain books of account as per section 44AA. The relief is

available only in respect of business covered by the provisions of section 44AD and not in

respect of any other business. Thus, if Mr. Kapoor owns any other business, in respect of

such business the provisions of section 44AA in respect of maintenance of books of account

will apply.


Illustration

Mr. Jay is an interior decorator. His gross receipts from this profession during the previous

year 2012-13 were Rs. 84,48,848 and he wants to declare income as per the provisions of

section 44AD. In this case will he be liable to maintain the books of account in respect of

aforesaid profession?

**


44AD, is not required to maintain books of account as per section 44AA (applicable only for

business covered by this section). The presumptive taxation scheme under these provisions

can be opted for by the eligible assessee who is engaged in any business (except the business

of plying, hiring or leasing goods carriages referred to in section 44AE), whose turnover or



previous year 2012-13). Moreover, the provisions of section 44AD cannot be adopted by an

assessee who is engaged in any profession as prescribed under section 44AA or is carrying on

an agency business or is earning income in the nature of commission or brokerage.

In this case Mr. Jay is engaged in one of the professions prescribed under section 44AA and,

hence, he is not eligible to adopt the provisions of section 44AD and, hence, the provisions of

section 44AA relating to maintenance of books of account will apply to him and he will be

liable to maintain the books of account as specified under section 44AA.

Illustration

Mr. Kaushal is running a provision shop. The turnover of the shop during the previous year

2012-13 was Rs. 25,84,848. He wants to adopt the provisions of section 44AD for the above

business. Apart from the business of provision shop, he is also engaged in the business of

plying, hiring or leasing of goods carriages and he owns 5 heavy goods vehicles. His actual

income from the goods transportation business is Rs. 3,000 per month (i.e., less than Rs.

5,000 per month or part thereof) per heavy goods vehicle and he wants to declare his actual

income of Rs. 3,000 for this business. In this case will he be liable to maintain the books of

account in respect of aforesaid businesses?

**


44AD, is not required to maintain books of account as per section 44AA. The relief is

available only in respect of business covered by the provisions of section 44AD and not in

respect of any other business. Thus, in this case he will not be liable to maintain books of

account in respect of business covered under section 44AD, i.e., business of provision shop

but in respect of business of plying, hiring or leasing goods carriages, he will be liable to

maintain books of account as provided under section 44AA.

6. What are the provisions relating to declaration of lower income/higher income under

the presumptive taxation scheme of section 44AD?

Following illustrations will explain the provisions relating to declaration of lower

income/higher income under the presumptive taxation scheme of section 44AD.

Illustration

Mr. Rohan is running a medical store and the turnover of the store during the previous year

2012-13 was Rs. 52,25,252. He wants to adopt the provisions of section 44AD. However, his

actual income from this business is Rs. 3,65,768 only which is less than Rs. 4,18,020 (i.e.,

Rs. 52,25,252 * 8%). In this case can he declare his actual income of Rs. 3,65,768 in respect

of his business of medical store?

**





Thus, in this case Mr. Rohan can declare lower income. However, in this case he has to


account audited, since his actual income exceeds the exemption limit (i.e., Rs. 2,00,000).

Illustration

Mr. Rahul is running a provision shop. The turnover of the shop during the previous year

2012-13 was Rs. 58,84,848. However, his actual income is Rs. 5,29,636 which is higher than

Rs. 4,70,788 (i.e., Rs. 58,84,848 * 8%). In this case can he declare his actual income of Rs.

5,29,636 which is higher than the limit prescribed under section 44AD?

**



assessee has to declare such higher income from aforesaid business. Thus, in this case Mr.

Rahul can declare higher income.

7. What are the provisions relating to applicability of provisions of advance tax under

the presumptive taxation scheme of section 44AD?

Following illustrations will explain the provisions relating to applicability of provisions of

advance tax under the presumptive taxation scheme of section 44AD.

Illustration

Mr. Kumar is running a garment factory. The turnover of the factory for the previous year

2012-13 amounted to Rs. 84,25,848. He adopted the provisions of section 44AD and declared

income @ 8% of the turnover. Apart from income from garment factory, he also earned

brokerage of Rs. 3,84,252. In this case will he be liable to pay advance tax in respect of his

business of factory as well as his brokerage income?

**

An assessee opting for the presumptive taxation scheme of section 44AD is not liable to pay

advance tax in respect of business covered under section 44AD. In this case, he will not be

liable to pay advance tax in respect of income from garment factory, even though the tax

liability in respect of income from the garment factory exceeds Rs. 10,000. However, as

regards brokerage income, he will be liable to pay advance tax since the tax liability on

brokerage income exceeds Rs. 10,000.


MCQs

Q1. The provisions relating to presumptive taxation scheme applicable to an assessee

engaged in any profession prescribed under section 44AA are given in section

________?

(a) 44AD

(b) 44AB

(c) 44AE

(d) No such provisions exist for an assessee engaged in any profession prescribed under

section 44AA

Correct answer (d)

Justification of correct answer:

The provisions relating to presumptive taxation scheme applicable to the eligible assessee

engaged in any business (except business of plying, hiring or leasing goods carriages referred

to in section 44AE and except by the assessee who is engaged in any profession as prescribed

under section 44AA or is carrying on agency business or is earning income in the nature of

commission or brokerage) are given in section 44AD. Hence, these provisions are not

applicable to an assessee engaged in any profession prescribed under section 44AA.

Thus, option (d) is the correct option.

Comment on incorrect answer: Option (d) is the correct option since it gives the correct

sections/provisions. All the other options, viz., options (a), (b) and (c) giving incorrect

sections/provisions are not correct.

Q2. The provisions relating to presumptive taxation scheme prescribed under section

44AD are applicable to the assessee who is an Individual, Hindu Undivided Family and

Partnership Firm but not Limited Liability Partnership Firm, irrespective of their

residential status.

(a) True (b) False

Correct answer (b)


The provisions relating to presumptive taxation scheme prescribed under section 44AD are

applicable only to such resident assessee who is an Individual, Hindu Undivided Family and

Partnership Firm but not Limited Liability Partnership Firm. Hence, the presumptive taxation

scheme of section 44AD cannot be adopted by a non-resident.

Thus, the statement given in the question is false and, hence, option (b) is the correct option.

Comment on incorrect answer: The statement given in the question is false. Hence, option

(a) is not the correct option.

Q3.The provisions relating to presumptive taxation scheme prescribed under section

44AD can be adopted by the non-resident assessee, being an Individual and Hindu

Undivided Family. However, these provisions cannot be adopted by the non-resident

assessee, being a Partnership Firm.

(a) True (b) False

Correct answer (b)





Partnership Firm but not Limited Liability Partnership Firm. Hence, the scheme of section

44AD cannot be adopted by a non-resident whether he is an Individual or Hindu Undivided

Family or Partnership Firm or any other non-resident assessee.




Q4.The provisions relating to presumptive taxation scheme prescribed under section

44AD cannot be adopted by the non-resident assessee, being a Partnership Firm. Can

these provisions be adopted by non-resident assessee being a Limited Liability

Partnership Firm?

(a) Yes (b) No

Correct answer (b)




Partnership Firm but not Limited Liability Partnership Firm. Hence, the scheme of section

44AD cannot be adopted by a Limited Liability Partnership Firm whether it is resident or

non-resident.

Thus, option (b) is the correct option.

Comment on incorrect answer: Option (b) is the correct option since it gives the correct

provisions. The other option, viz., option (a) giving the incorrect provisions is not correct.

Q5. The provisions of presumptive taxation scheme prescribed under section 44AD can

be adopted by an individual earning income in the nature of commission or brokerage

but cannot be adopted by an HUF earning income in the nature of commission or

brokerage.

(a) True (b) False

Correct answer (b)


The provisions of section 44AD cannot be adopted by the eligible assessee who is engaged in

any profession as prescribed under section 44AA or is carrying on an agency business or is

earning income in the nature of commission or brokerage. Thus, an assessee (irrespective of

his status) earning income in the nature of commission or brokerage cannot adopt the

provisions of section 44AD.





44AD are applicable to the eligible assessee engaged in the eligible business only if the

income from such eligible business is below the 8% of the turnover or gross receipts of

such eligible business.

(a) True (b) False

Correct answer (b)



applicable to the eligible assessee engaged in any business (except business of plying, hiring

or leasing goods carriages referred to in section 44AE and except by the assessee who is

engaged in any profession prescribed under section 44AA or is carrying on agency business


or is earning income in the nature of commission or brokerage).There is no such condition

that the provisions can be adopted only if the income from the eligible business is below the

8% of turnover or gross receipts of the eligible business.





44AD are applicable to the eligible assessee engaged in the business only if the turnover

or gross receipts from the eligible business is below the limit of audit prescribed under

section 44AB in the preceding financial year.

(a) True (b) False

Correct answer (b)





engaged in any profession as prescribed under section 44AA or is carrying on agency

business or is earning income in the nature of commission or brokerage) whose turnover or



previous year 2012-13) during the financial year in which he wants to adopt the presumptive

taxation scheme and not during the preceding financial year.





44AD are applicable to the eligible assessee engaged in the business only if the turnover

or gross receipts from the eligible business is below the limit of audit prescribed under

section 44AB in the preceding financial year as well as in the financial year in which he

wants to adopt the scheme.

(a) True (b) False

Correct answer (b)









previous year 2012-13) during the financial year in which he wants to adopt the presumptive

taxation scheme and not during the preceding financial year.





44AD can be adopted by an assessee engaged in the business of retail trade only if his

income from retail trade does not exceed Rs. 5,000 per month.


(a) True (b) False

Correct answer (b)






or is earning income in the nature of commission or brokerage) whose turnover or gross



2012-13). Hence, the assessee engaged in retail trade can adopt the provisions of section

44AD only if his turnover or gross receipts of the previous year do not exceed the limit of

audit prescribed under section 44AB.




Q10. Mr. Kapoor is running a factory. The turnover of the factory during the previous

year 2012-13 was Rs. 84,25,252 and during the previous year 2011-12 it was Rs.

1,25,84,848. Can he adopt the provisions of presumptive taxation scheme of section


(a) Yes (b) No

Correct answer (a)









previous year 2012-13). Hence, Mr. Kapoor can adopt the presumptive taxation scheme of

section 44AD since his turnover during the previous year 2012-13 was below the limit of

audit (i.e., Rs. 1,00,00,000). Turnover during the previous year in question is relevant.

Turnover in the immediately preceding previous year is not relevant.

Thus, option (a) is the correct option.

Comment on incorrect answer: Option (a) is the correct option since it gives the correct

provisions. Other option, viz., option (b) giving incorrect provisions is not correct.

Q11. Mr. Kapoor is running a factory. The turnover of the factory during the previous

year 2012-13 was Rs. 1,84,25,252 and during the previous year 2011-12 it was Rs.

84,84,848. Can he adopt the provisions of presumptive taxation scheme of section 44AD

in respect of this business?

(a) Yes (b) No

Correct answer (b)










previous year 2012-13). Hence, Mr. Kapoor cannot adopt the presumptive taxation scheme of

section 44AD since his turnover during the previous year 2012-13 exceeded the limit of audit

(i.e., Rs. 1,00,00,000).



provisions. Other option, viz., option (a) giving incorrect provisions is not correct.

Q12. Mr. Soham is an engineer. His gross receipts during the previous year 2012-13

amounted to Rs. 68,84,252. Can he adopt the provisions of presumptive taxation scheme

of section 44AD in respect of this business?

(a) Yes (b) No

Correct answer (b)









previous year 2012-13).

In this case, Mr. Soham is engaged in one of the professions specified under section 44AA.

Hence, Mr. Soham cannot adopt the presumptive taxation scheme of section 44AD, even

though his gross receipts are below the limit of audit.




Q13. Raja HUF whose Karta is Mr. Raja is running a departmental store and its gross

receipts during the previous year 2012-13 were Rs. 84,00,000. Mr. Raja is also running

his own provision shop and the turnover of the shop during the previous year 2012-13

was Rs. 48,84,000. They both want to adopt the provision of section 44AD. Can HUF as

well as the Karta, both adopt the provisions of section 44AD?

(a) Yes (b) No

Correct answer (a)










previous year 2012-13). There is no restriction in adopting the provisions of section 44AD by

a Hindu Undivided Family as well as the Karta of HUF. Hence, in this case, both, i.e., Raja

HUF and Mr. Raja can adopt the provisions of section 44AD since the turnover of both of

them is below the limit of audit prescribed under section 44AB.




Q14. SM Enterprise, a partnership firm, is engaged in agency business. Its gross

receipts during the previous year 2012-13 were Rs. 84,25,000. Mr. Shan, one of the

partners of SM Enterprise, is also earning a commission income in his own capacity and

his gross receipts during the previous year 2012-13 were Rs. 48,52,000. They both want

to adopt the provisions of section 44AD. Can they do so?

(a) Yes (b) No

Correct answer (b)









previous year 2012-13). There is no restriction on adopting the provisions of section 44AD

by both a partnership firm as well as the partners of the firm.

However, in this case both, i.e., SM Enterprise and Mr. Shan are engaged in the ineligible

business, i.e., in the business for which the provisions of section 44AD cannot be adopted.

Hence, SM Enterprise as well as Mr. Shan cannot adopt the provisions of section 44AD.




Q15. Essem Corporation (a partnership firm) whose partners are Mr. Soham and Mr.

Mohan is running a factory. The turnover of the factory during the previous year 2012-

13 was Rs. 88,44,848. The partners also carry their own agency business. In this case,

can the firm adopt the provisions of presumptive taxation scheme of section 44AD?

(a) Yes (b) No

Correct answer (a)






or is earning income in the nature of commission or brokerage) whose turnover or gross



2012-13). Thus, the firm satisfied both the criteria of the scheme and, hence, it can adopt the

provisions of section 44AD for its factory. There is no such criteria that a firm cannot adopt

the provisions of section 44AD if the partners are engaged in the ineligible business.





Q16. SM Corporation (a limited liability partnership firm) is running a departmental

store and its gross receipts during the previous year 2012-13 were Rs. 52,25,252. It

wants to declare income as per the provisions of section 44AD. Can it do so?

(a) Yes (b) No

Correct answer (b)




Partnership Firm. Hence, SM Corporation, a Limited Liability Partnership Firm cannot adopt

the presumptive taxation scheme of section 44AD.




Q17. In case of an assessee who is willing to adopt the provisions of section 44AD,

income will be computed on an estimated basis at prescribed rate of 5% per month.

(a) True (b) False

Correct answer (b)


In case of an assessee who is willing to adopt the provisions of section 44AD, income will be

computed on an estimated basis at the prescribed rate. The rate is 8% of turnover or gross

receipts of the eligible business for the whole previous year.




Q18. Raja HUF whose Karta is Mr. Raja is running a departmental store. The turnover

of the store during the previous year 2012-13 was Rs. 88,25,252. It wants to adopt the

provisions of section 44AD. However, the Karta of the HUF is of the opinion that in case

of HUF the income at the prescribed rate is computed by considering the turnover of

the half year and, hence, it declared income of Rs. 3,53,010 [i.e., ( Rs. 88,25,252/2) *

8%]. Is the income shown by HUF correct? (It may be assumed that turnover has

accrued evenly during each month).

(a) Yes (b) No

Correct answer (b)




receipts of the eligible business, for the whole previous year. In no case the turnover is to be

considered for the half year. Hence, the income declared by HUF is not correct, since it

should be Rs. 7,06,020 (Rs. 88,25,252 * 8%).



provisions. The other option, viz., option (a) giving the incorrect option is not correct.


Q19. SM Corporation (a partnership firm) of Miss Khushi and Miss Khushali is

running a boutique. The gross receipts of the boutique during the previous year 2012-13

were Rs. 94,48,848 and it wants to adopt the provisions of section 44AD. However, Miss

Khushi is of the opinion that in case of partnership firm, income at the prescribed rate

is computed by considering the turnover of each quarter and, hence, it declared income

of Rs. 1,88,977 [i.e., (Rs. 94,48,848/4) * 8%]. Is the income shown by partnership firm

correct? (It may be assumed that turnover has accrued evenly during the each quarter).

(a) Yes (b) No

Correct answer (b)




receipts of the eligible business, for the whole previous year. In no case the turnover is to be

considered for each quarter. Hence, the income declared by partnership firm is not correct,

since it should be Rs. 7,55,908 (Rs. 94,48,848 * 8%).



provisions. The other option, viz., option (a) giving the incorrect option is not correct.

Q20. Mr. Soham is running a garment factory whose turnover during the previous year

2012-13 was Rs. 52,84,252. He wants to adkopt the provisions of section 44AD in respect

of this business. In this case what will be his income as per the provisions of section

44AD?

(a) Rs. 2,11,371 (b) Rs. 4,22,740

(c) Rs. 52,84,252 (d) Rs. 1,05,685

Correct answer (b)


As per the provisions of section 44AD, in respect of business covered under section 44AD,

income will be computed on an estimated basis. The rate is 8% of turnover or gross receipts

of the eligible business for the previous year. In this case, the turnover of Mr. Soham is Rs.

52,84,252. Hence, his income as per the provisions of section 44AD will come to Rs.

4,22,740 (i.e., Rs. 52,84,252 * 8%).



amount of income. All the other options, viz., options (a), (c) and (d) giving incorrect amount

of income are not correct.

Q21. Kumar HUF is running a garment factory. Its turnover from this business during

the previous year 2012-13 was Rs. 97,25,252. It wants to adopt the provisions of section

44AD in respect of this business. In this case what will be its income as per the


(a) Rs. 97,25,252

(b) Rs. 1,94,505

(c) Rs. 3,89,010

(d) Rs. 7,78,020

Correct answer (d)



As per the provisions of section 44AD, in respect of business covered under section 44AD,

income will be computed on an estimated basis. The rate is 8% of turnover or gross receipts

of the eligible business for the previous year. In this case, the turnover of Kumar HUF is Rs.

97,25,252. Hence, its income as per the provisions of section 44AD will come to Rs. 7,78,020

(i.e., Rs. 97,25,252 * 8%).

Comment on incorrect answer: Option (d) is the correct option since it gives the correct

amount of income. All the other options, viz., options (a), (b) and (c) giving incorrect amount

of income are not correct.

Q22.Income computed as per the provisions of section 44AD (i.e., @ 8% of turnover or

gross receipts of the eligible business, for the previous year) will be the net income of the

business covered under this scheme. However, in case of partnership firm such income

will be the gross income of the business covered under this scheme.

(a) True (b) False

Correct answer (b)


Income computed as per the provisions of section 44AD (i.e., @ 8% of turnover or gross

receipts of the eligible business for the previous year) will be net income for the business

covered under this scheme. In no case the income from the eligible business computed as per

the provisions of section 44AD will be the gross income of the business.




Q23. Mr. Kumar is running a garment factory. The turnover of the factory during the

previous year 2012-13 was Rs. 52,00,000. He declared income of Rs. 4,16,000 (i.e., Rs.

52,00,000 * 8%) as per the provisions of section 44AD. From the net income of Rs.

4,16,000, he can further deduct the salary of Rs. 25,000 paid to accountant and

depreciation on factory building of Rs. 84,000.

(a) True (b) False

Correct answer (b)




covered under this scheme. From the net income computed as above, assessee is not


unabsorbed depreciation). Hence, he cannot further deduct the salary of Rs. 25,000 and

depreciation of Rs. 84,000 from the net income of Rs. 4,16,000.





previous year 2012-13 was Rs. 52,00,000 and he declared income of Rs. 4,16,000 (i.e., Rs.


4,16,000, he cannot further deduct the salary of Rs. 25,000 paid to accountant, however,

he can deduct depreciation on factory building of Rs. 84,000.


(a) True (b) False

Correct answer (b)






unabsorbed depreciation). Hence, he cannot further deduct the salary of Rs. 25,000 as well as








4,16,000, he can deduct salary of Rs. 25,000 paid to accountant, however, he cannot

deduct depreciation on factory building of Rs. 84,000.

(a) True (b) False

Correct answer (b)






unabsorbed depreciation). Hence, he cannot deduct the salary of Rs. 25,000 as well as








4,16,000, he cannot deduct the salary of Rs. 25,000 paid to accountant and depreciation

on factory building of Rs. 84,000. However, he can claim deduction in respect of

unabsorbed depreciation of Rs. 1,25,848.

(a) True (b) False

Correct answer (b)



receipts of the eligible business, for the previous year) will be net income for the business



unabsorbed depreciation). Hence, he cannot deduct the salary of Rs. 25,000, depreciation of

Rs. 84,000 and unabsorbed depreciation of Rs. 1,25,848 from the net income of Rs. 4,16,000.








4,16,000, he cannot further deduct the salary of Rs. 25,000 paid to accountant and

depreciation on factory building of Rs. 84,000, including unabsorbed depreciation of Rs.

1,25,848. However, he can claim deduction in respect of brought forward business loss

of Rs. 2,84,000.

(a) True (b) False

Correct answer (a)






unabsorbed depreciation). Hence, he cannot deduct the salary of Rs. 25,000, depreciation of

Rs. 84,000 and unabsorbed depreciation of Rs. 1,25,848 from the net income of Rs. 4,16,000.

However, he can claim deduction in respect of brought forward business loss of Rs. 2,84,000.

Thus, the statement given in the question is true and, hence, option (a) is the correct option.

Comment on incorrect answer: The statement given in the question is true. Hence, option

(b) is not the correct option.

Q28. SM Corporation, a partnership firm, is running a garment factory. The turnover

of the factory during the previous year 2012-13 is Rs. 52,00,000. It declared an income

of Rs. 4,16,000 (i.e., Rs. 52,00,000 * 8%) as per the provisions of section 44AD. From the

net income of Rs. 4,16,000, it cannot deduct the salary of Rs. 25,000 paid to accountant

and depreciation on factory building of Rs. 84,000, including unabsorbed depreciation

of Rs. 1,25,848. However, it can claim deduction in respect of remuneration of Rs.

84,252 and interest of Rs. 25,848 paid to the partners on their capital within the limit

specified under section 40(b).

(a) True (b) False

Correct answer (a)






unabsorbed depreciation). However, assessee, being a partnership firm, can claim further

deduction of remuneration and interest paid to its partners within the limit specified under

section 40(b). Hence, SM Corporation can claim deduction in respect of remuneration of Rs.

84,252 and interest of Rs. 25,848 paid to the partners on their capital within the limit

specified under section 40(b).




Q29. Mr. Raja is running a provision shop. The turnover of the shop during the



84,00,000 * 8%) as per the provisions of section 44AD. He further carried on the

following transactions.

He paid a commission of Rs. 8,400 to his selling agent without deduction of the tax at

source from such commission.

He purchased goods worth Rs. 52,000 from his brother. The fair market value of such

goods is Rs. 40,000.

Interest of Rs. 25,000 (for the year 2012-13) on a loan taken for his business from a

one of the scheduled banks was not paid till the due date of filing the return of the

previous year 2012-13.

Will these transaction be disallowed and added to the net income of Rs. 6,72,000?

(a) Yes (b) No

Correct answer (b)



receipts of the eligible business, for the previous year) will be net income of the business

covered under this scheme. From income computed at the aforesaid rate, no disallowance can

be made under sections 40, 40A and 43B. Hence, no disallowance will be made in respect of

the above mentioned transactions.















From the above transactions, no disallowance is to be made in respect of commission.

However, other two transactions will be disallowed and added to the net income of Rs.

6,72,000.

(a) True (b) False

Correct answer (b)






all above mentioned transactions.













Interest of Rs. 25,000 (for the year 2012-13) on a loan taken for his business from one

of the scheduled banks is not paid till the due date of filing the return of the previous

year 2012-13.

From the above transactions, no disallowance is made in respect of commission as well as

goods purchased from his brother. However, interest will be disallowed and added to the net

income of Rs. 6,72,000.

(a) True (b) False

Correct answer (b)





















From the above transactions, no disallowance is made in respect of goods purchased from his

brother as well as interest. However, commission will be disallowed and added to the net

income of Rs. 6,72,000.

(a) True (b) False


Correct answer (b)










Q33. Mr. Soham is running a medical store. The turnover of the store during the


84,25,848 * 8%) as per the provisions of section 44AD. He cannot claim depreciation on

the shop building of Rs. 25,000 as well as on the computer system of Rs. 12,000.

However, he wants to compute the WDV of the block of these assets as if the

depreciation is claimed and allowed under section 32. Can he do so?

(a) Yes (b) No

Correct answer (a)


As per the provisions of section 44AD, an assessee opting for the presumptive taxation

scheme is not permitted to claim deduction on account of various expenditures including

depreciation, however, the WDV of any asset used in the business covered under the scheme

of section 44AD shall be calculated as if depreciation as per section 32 is claimed and

allowed. Thus, even though no depreciation is available separately, yet for purpose of

computation of the WDV of the asset depreciation will be deducted.



provisions. The other option, viz., option (b) giving the incorrect provisions is not correct.



84,25,848 * 8%) as per the provisions of section 44AD. He cannot claim depreciation on

the shop building of Rs. 25,000 as well as on the computer system of Rs. 12,000. Hence,

as per his view, the WDV of the block of these assets will also be calculated as if no

depreciation is claimed under section 32.

(a) True (b) False

Correct answer (b)


As per the provisions of section 44AD, an assessee opting for the presumptive taxation

scheme is not permitted to claim deduction on account of various expenditures, including

depreciation, however, the WDV of any asset used in the business covered under the scheme

of section 44AD shall be calculated as if depreciation as per section 32 is claimed and

allowed. Thus, even though no depreciation is available separately, yet for purpose of

computation of the WDV of the asset depreciation will be deducted. Hence, view of Mr. Raja

is not correct.





Q35. SM Corporation, a partnership firm, is running a factory whose turnover from

this business during the previous year 2012-13 was Rs. 52,25,252 and it declared income

as per the provisions of section 44AD. After computing the income @ 8% of turnover

from such business during the previous year, the partners of the firm have calculated

the closing WDV of the block of assets consisting of plants A, B and C as if the

depreciation under section 32 is claimed and allowed. Is the closing WDV calculated by

the partners correct?

(a) Yes (b) No

Correct answer (a)





calculated as if depreciation as per section 32 is claimed and allowed. Even though no


depreciation will be deducted from the value of the block. Hence, the closing WDV

calculated by the partners is correct.




Q36. If an assessee, being an individual, adopts the provisions of section 44AD then he is

not required to maintain books of account as per section 44AA in respect of business for

which the provisions of section 44AD are being adopted. However, the assessee, being a

partnership firm is required to maintain the books of account as per section 44AA in

respect of the business for which it has adopted the provisions of section 44AD.

(a) True (b) False

Correct answer (b)


An assessee adopting the provisions of section 44AD is not required to maintain books of

account as per section 44AA (applicable only for business covered by this section). This

benefit is available to all the assessees who are eligible to adopt the provisions of section

44AD. Hence, partnership firm is also not required to maintain the books of account as per

section 44AA in respect of the business for which it has adopted the provisions of section

44AD.




Q37. If an assessee, being a partnership firm, adopts the provisions of section 44AD

then it is not required to get the books of account audited as per section 44AB in respect

of business for which the provisions of section 44AD are being adopted. However, the

assessee - HUF is required to get the books of account audited as per section 44AB in

respect of the business for which it has adopted the provisions of section 44AD.

(a) True (b) False

Correct answer (b)



An assessee adopting the provisions of section 44AD is not required to maintain books of

account as per section 44AA and is also not required to get such books of account audited as

per section 44AB (applicable only for business covered by this section). This benefit is

available to all the assessees who are eligible to adopt the provisions of section 44AD. Hence,

HUF is also not required to get the books of account audited as per section 44AB in respect

of the business for which it has adopted the provisions of section 44AD.




Q38. If an assessee, being a partnership firm, adopts the provisions of section 44AD

then it is not required to get the books of account audited as per section 44AB in respect

of business for which the provisions of section 44AD are being adopted. However, the

assessee, being a limited liability partnership firm, is required to get the books of

account audited as per section 44AB in respect of all its businesses.

(a) True (b) False

Correct answer (a)


An assessee, being a limited liability partnership firm, cannot adopt the provisions of section

44AD and, hence, it is required to maintain the books of account as per section 44AA as well

as liable to get such books of account audited as per section 44AB in respect of all of its

businesses.






84,25,848 * 8%) as per the provisions of section 44AD. Is he required to maintain books

of account in respect of his medical store?

(a) Yes (b) No

Correct answer (b)


An assessee who adopts the provisions of section 44AD is not required to maintain books of

account as per section 44AA (applicable only for business covered by this section). Hence,

Mr. Soham is not required to maintain books of account as per section 44AA in respect of his

medical store.






84,25,848 * 8%) as per the provisions of section 44AD. He is not required to maintain

books of account in respect of his medical store. Shall the provisions of section 44AB in

respect of audit be applicable to Mr. Soham?

(a) Yes (b) No

Correct answer (b)




account as per section 44AA (applicable only for business covered by this section). Further,

in respect of such business the provisions of section 44AB (relating to audit) are also not

applicable. Hence, Mr. Soham is not liable to maintain books of account as per section 44AA

as well as get such books of account audited as per section 44AB in respect of his business of

medical store.






84,25,848 * 8%) as per the provisions of section 44AD. He is also engaged in the

business of passenger transportation. Is he liable to maintain books of account in

respect of both of his businesses?

(a) Yes (b) No

Correct answer (b)



account as per section 44AA (applicable only for business covered by this section). Hence,

Mr. Soham is not required to maintain books of account as per section 44AA in respect of his

medical store. However, in respect of the passenger transportation business he is liable to

maintain the books of account as per section 44AA.






84,25,848 * 8%) as per the provisions of section 44AD. He is also engaged in the

business of passenger transportation. Is he liable to get books of account audited as per

section 44AB in respect of both of his businesses?

(a) Yes (b) No

Correct answer (b)



account as per section 44AA (applicable only for business covered by this section). Further,

in respect of such business the provisions of section 44AB (relating to audit) are also not

applicable. Hence, Mr. Soham is not required to maintain books of account as per section

44AA as well as get such books of account audited as per section 44AB in respect of his

medical store. However, in respect of the passenger transportation business, he is liable to

maintain the books of account as per section 44AA as well as get such books of account

audited as per section 44AB.





Q43. Mr. Kapoor is engaged in the business of cement manufacturing whose turnover

from this business during the previous year 2012-13 was Rs. 1,02,25,252. In this case he

will not be liable to maintain the books of account in respect of this business only if he

declares income at a higher rate than the rate prescribed under section 44AD.

(a) True (b) False

Correct answer (b)


In this case, the provisions of section 44AD cannot be adopted by Mr. Kapoor since the

turnover of the business of cement manufacturing exceeds the limit of audit prescribed under

section 44AB during the previous year 2012-13 and, hence, he will be liable to maintain

books of account prescribed under section 44AA in respect of above business.




Q44. Mr. Soham is running a garment factory. The turnover of the factory during the

previous year 2012-13 was Rs. 84,25,000 and he wants to adopt the provisions of section

44AD. However, his actual income from this business is Rs. 5,05,500 which is less than

Rs. 6,74,000 (i.e., Rs. 84,25,000 * 8%). Is he liable to maintain the books of account if he

declares his actual income?

(a) Yes (b) No

Correct answer (a)


As per the provisions of section 44AD, an assessee who adopts the provision of section 44AD

is not required to maintain books of account as per section 44AA. The relief from

maintenance of books of account is available only if the assessee adopts the provisions of

section 44AD, i.e., if he declares income at the rate prescribed under section 44AD or at the

higher rate. In this case, Mr. Soham is not adopting the provisions of section 44AD and,

hence, he will be liable to maintain the books of account as provided in section 44AA since

his actual income exceeds the maximum amount which is not chargeable to tax.




Q45. Mr. Soham is running a garment factory. The turnover of the factory during the

previous year 2012-13 was Rs. 84,25,000 and he wants to adopt the provisions of section

44AD. However, his actual income from this business is Rs. 5,05,500 which is less than

Rs. 6,74,000 (i.e., Rs. 84,25,000 * 8%). In this case he is liable to maintain the books of

account if he declares his actual income. However, is he liable to get such books of

account audited if he declares his actual income?

(a) Yes (b) No

Correct answer (a)


As per the provisions of section 44AD, an assessee who adopts the provision of section 44AD

is not required to maintain books of account as per section 44AA. The relief from

maintenance of books of account is available only if the assessee adopts the provisions of

section 44AD, i.e., if he declares income at the rate prescribed under section 44AD or at the

higher rate. In this case, Mr. Soham is not adopting the provisions of section 44AD and,

hence, he will be liable to maintain the books of account as provided in section 44AA as well


as liable to get such books of account audited as per section 44AB, since his actual income

exceeds the maximum amount which is not chargeable to tax.




Q46. Mr. Raja is running a stationary mart whose turnover from this business during

the previous year 2012-13 was Rs. 52,25,252. However, his actual income from this

business is Rs. 2,61,263 which is less than Rs. 4,18,020 (i.e., Rs. 52,25,252 * 8%). In this

case, he can declare his actual income of Rs. 2,61,263 which is lower than the limit

prescribed under section 44AD.

(a) True (b) False

Correct answer (a)





Thus, in this case Mr. Raja can declare lower income. However, in this case he has to


account audited as per section 44AB since his actual income exceeds the maximum amount

which is not chargeable to tax.




Q47. The assessee, being an individual, can declare income at higher rate (i.e., higher

than 8%) if his actual income is higher than the income computed as per the provisions

of section 44AD. However, the assessee, being a partnership firm, cannot declare income

at a higher rate, even though its actual income is higher than the income computed as

per the provisions of section 44AD.

(a) True (b) False

Correct answer (b)


The scheme permits the assessee to declare at his option higher income (i.e., higher than 8%).

Hence, a partnership firm is also not barred from declaring higher income.




Q48. Raja HUF is running a departmental store. The turnover of the store during the

previous year 2012-13 was Rs. 84,25,000 and it wants to adopt the provisions of section

44AD. Its actual income from this business is Rs. 8,84,848 which is higher than Rs.

6,74,000 (i.e., Rs. 84,25,000 * 8%). In this case, it cannot declare its actual income of Rs.

8,84,848 which is higher than the rate prescribed under section 44AD since HUF cannot

declare income at higher rate.

(a) True (b) False

Correct answer (b)





assessee has to declare such higher income from the aforesaid business. Hence, HUF is not

barred from declaring higher income and it can declare its actual income of Rs. 8,84,848.




Q49. The assessee, being an individual, is not liable to maintain the books of account as

per section 44AA, even though he declares income at higher rate (i.e., higher than 8%).

However, the assessee, being a partnership firm is liable to maintain the books of

account as per section 44AA if it declares income at a higher rate (i.e., higher than 8%).

(a) True (b) False

Correct answer (b)




assessee has to declare such higher income from the aforesaid business. If higher income is

declared then there is no need to maintain regular books of account as prescribed under

section 44AA. Hence, this benefit of non-maintenance of books of account is also available to

partnership firm if it declares income at a higher rate.




Q50. Raja HUF is running a departmental store. The turnover of the store during the

previous year 2012-13 was Rs. 84,25,000 and it wants to adopt the provisions of section


6,74,000 (i.e., Rs. 84,25,000 * 8%). In this case it is liable to maintain the books of

account if it declares its actual income.

(a) True (b) False

Correct answer (b)






section 44AA. Hence, the benefit of non-maintenance of books of account is also available to

Raja HUF.




Q51. The assessee, being a partnership firm, is not liable to get the books of account

audited as per section 44AB, even though it declares income at higher rate (i.e., higher

than 8%). However, the assessee, being an HUF is liable to get the books of account

audited as per section 44AB, if it declares income at a higher rate (i.e., higher than 8%).

(a) True (b) False

Correct answer (b)






declared then there is no need to maintain regular books of account prescribed under section

44AA as well as to get such books of account audited as per section 44AB. Hence, this

benefit of non-maintenance of books of account as well as not to get such books of account

audited is also available to HUF if it declares higher income.




Q52. Mr. Kumar is running a provision shop. The turnover of the shop during the

previous year 2012-13 was Rs. 44,00,000. He wants to adopt the provisions of section


3,52,000 (i.e., Rs. 44,00,000 * 8%). In this case, is he liable to get the books of account

audited if he declares his actual income?

(a) Yes (b) No

Correct answer (b)






section 44AA as well as to get such books of account audited as prescribed under section

44AB. Hence, Mr. Kumar is not required to get the books of account audited as per section

44AB if he declares higher income.




Q53.The assessee, being an individual, can adopt the provisions of section 44AD, even

though he claims deduction under any of the sections 10A/10AA/10B/10BA or under

sections 80HH to 80RRB in the relevant year. However, the assessee, being an HUF,

cannot adopt the provisions of section 44AD if it claims deduction under any of the

sections 10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant year.

(a) True (b) False

Correct answer (b)


As per the provisions of section 44AD, the scheme can be adopted by the eligible assessee

engaged in any business (except the business of plying, hiring or leasing goods carriages

referred to in section 44AE and except by the assessee who is engaged in any profession

prescribed under section 44AA or is carrying on agency business or is earning income in the

nature of commission or brokerage), whose turnover or gross receipts from such business do

not exceed the limit of audit prescribed under section 44AB (i.e., Rs. 60,00,000 for the

previous year 2011-12 and Rs. 1,00,00,000 from the previous year 2012-13). Further, these

provisions can be adopted by the assessee only if he has not claimed deduction under section

10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant year. Hence,


individual as well as HUF cannot adopt the provisions of section 44AD if they claim

deduction under any of the abovementioned sections.




Q54. As per the provisions of section 44AD, the assessee who wants to adopt the

provisions of section 44AD cannot claim deduction under any of the sections

10A/10AA/10B/10BA. However, he can claim deduction under sections 80HH to 80RRB

in the relevant year.

(a) True (b) False

Correct answer (b)










10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant year.




Q55. SM Corporation, a partnership firm, is an entrepreneur as defined in section 2(j)

of the SEZ Act, 2005. It fulfills all the other conditions of section 10AA and claims

deduction under section 10AA during the previous year 2012-13. Its turnover during

the previous year 2012-13 is Rs. 99,84,000 and wants to adopt the provisions of section

44AD. Can it do so?

(a) Yes (b) No

Correct answer (b)










10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant year. Hence, SM

Corporation cannot adopt the provisions of section 44AD.





Q56. SM Corporation, a partnership firm is an entrepreneur as defined in section 2(j) of

the SEZ Act, 2005. However, it cannot claim deduction under section 10AA from

previous year 2012-13 since a period of deduction (i.e., 15 years) is over. Its turnover

during the previous year 2012-13 was Rs. 99,84,000 and wants to adopt the provisions of

section 44AD. Can it do so?

(a) Yes (b) No

Correct answer (a)










10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant year. Hence, SM

Corporation can adopt the provisions of section 44AD since in previous year 2012-13 it has

not claimed deduction under section 10AA.




Q57. SM Ltd. is engaged in the business of industrial research. It fulfilled all the other

conditions of section 80-IB and claimed deduction under section 80-IB during the

previous year 2012-13. It wants to adopt the provisions of section 44AD since its gross

receipts during the previous year 2012-13 were below the limit of audit prescribed

under section 44AB. Can it do so?

(a) Yes (b) No

Correct answer (b)


The provisions of section 44AD cannot be adopted by the assessee being a company whether

it has claimed deduction under any of the sections 80HH to 80RRB or not in the relevant

year.




Q58. As per the provisions of section 44AD, the assessee who wants to adopt the

provisions of section 44AD cannot claim deduction under any of the sections

10A/10AA/10B/10BA or sections 80HH to 80RRB in the relevant year. Can he claim

deduction under any of the sections 80C to 80U?

(a) Yes (b) No

Correct answer (a)











10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant year. However,

deduction under section 80C to 80U can be claimed separately.




Q59. As per the provisions of section 44AD, an individual who adopts the provisions of

section 44AD can claim deduction under any of the sections 80C to 80U. However, an

HUF who adopts the provisions of section 44AD cannot claim deduction under any of

the sections 80C to 80U.

(a) True (b) False

Correct answer (b)











deduction under section 80C to 80U (except sections 80HH to 80RRB) can be claimed

separately. Hence, an HUF is also not barred from claiming deduction under any of the

sections 80C to 80U except sections 80HH to 80RRB.




Q60. As per the provisions of section 44AD, an HUF who adopts the provisions of

section 44AD cannot claim deduction under any of the sections 80C to 80U if any of its

members has claimed deduction under any of the sections 80C to 80U in his personal

return.

(a) True (b) False

Correct answer (b)












deduction under sections 80C to 80U can be claimed separately. Nowhere it is mentioned in

section 44AD that an HUF cannot claim deduction under any of the sections 80C to 80U if

any of its members has claimed deduction under above mentioned sections in his personal

return.




Q61. Mr. Raja is running a garment factory. The turnover of the factory during the


84,00,000 * 8%) as per the provisions of section 44AD. He further wants to claim

deduction under section 80TTA in respect of interest on deposits in saving account. Can

he claim deduction under section 80TTA from the net income of Rs. 6,72,000?

(a) Yes (b) No

Correct answer (a)


As per the provisions of section 44AD, the assessee can claim deductions under sections 80C

to 80U (except sections 80HH to 80RRB) separately from the net income computed as per

the provisions of section 44AD. Hence, Mr. Raja can claim deduction under section 80TTA

from the net income of Rs. 6,72,000.




Q62. Raja HUF is engaged in the business of cement manufacturing whose turnover

during the previous year 2012-13 was Rs. 1,25,52,252. HUF has incurred expenditure

for the medical treatment of one of the members of the family suffering from the

specified disease as prescribed by the Board under rule 11DD and is wholly dependent

upon the family. It claims deduction under section 80DDB and wants to adopt the

provisions of section 44AD during the previous year 2012-13. Can it do so?

(a) Yes (b) No

Correct answer (b)


As per the provisions of section 44AD, Raja HUF cannot adopt the provisions of section

44AD since its turnover during the previous year 2012-13 exceeded the limit of audit (i.e.,

Rs. 1,00,00,000) as prescribed under section 44AB.




Q63. Shall the provisions relating to advance tax apply to the assessee who adopts the


(a) Yes (b) No

Correct answer (b)



As per the provisions of section 44AD, the provisions relating to advance tax shall not apply

to the assessee who adopts the presumptive taxation scheme of section 44AD.




Q64. A partnership firm adopting the provisions of section 44AD is not liable to pay

advance tax in respect of the business covered under section 44AD. However, partners

adopting the provisions of section 44AD for their personal business are liable to pay

advance tax in respect of the business covered under section 44AD.

(a) True (b) False

Correct answer (b)


An assessee opting for the presumptive taxation scheme of section 44AD will not be liable to

pay advance tax in respect of business covered under section 44AD. In other words, a person

adopting the provisions of presumptive taxation scheme of section 44AD is not liable to pay

advance tax in respect of the business covered under section 44AD. Thus, an assessee may be

a partnership firm or its partners (i.e., as individuals on their own) adopting the provisions of

section 44AD is not liable to pay advance tax in respect of the business covered under section

44AD.




Q65. The assessee adopting the provisions of section 44AD is not liable to pay advance

tax in respect of all his businesses whether covered under section 44AD or not.

(a) True (b) False

Correct answer (b)



pay advance tax in respect of only for the business covered under section 44AD. Hence, if an

assessee owns any other business for which he has not adopted the provisions of section

44AD or the business for which the provisions of section 44AD cannot be adopted, then in

respect of that business he is liable to pay advance tax.




Q66. The assessee adopting the provisions of section 44AD is liable to pay advance tax

in respect of his other business for which he has not adopted the provisions of section

44AD only if advance tax payable exceeds Rs. 20,000.

(a) True (b) False

Correct answer (b)



pay advance tax in respect of only the business covered under section 44AD. Hence, if an



respect of that business he is liable to pay advance tax if advance tax payable is Rs. 10,000 or

more.


Thus, the statement given in the question is false and hence, option (b) is the correct option.



Q67. SM Corporation, a partnership firm of Mr. Mohan and Mr. Soham is running a

factory whose turnover from this business during the previous year 2012-13 was Rs.

1,01,25,252 and its taxable income was Rs. 10,00,000. Mr. Soham is running a

proprietary concern in his own capacity and he has adopted the provisions of section

44AD in respect of his own business during the previous year 2012-13. Hence, in this

case SM Corporation is not liable to pay advance tax for its factory business since Mr.

Soham has adopted the provisions of section 44AD.

(a) True (b) False

Correct answer (b)


As per the provisions of section 44AD, the provisions relating to advance tax shall not apply

only to the assessee who adopts the presumptive taxation scheme of section 44AD.

In this case the provisions of section 44AD are being adopted by one of the partners of SM

Corporation for his own business and not by the SM Corporation. Hence, SM Corporation is

liable to pay advance tax since its tax liability exceeds Rs. 10,000.




Q68. SM Corporation, a partnership firm of Mr. Mohan and Mr. Soham, is running a

factory whose turnover from this business during the previous year 2012-13 was Rs.

84,25,252 and declared income of Rs. 6,74,020 (i.e., Rs. 84,25,252 * 8%). It also earned a

brokerage of Rs. 5,84,000 during the previous year 2012-13. Is it liable to pay advance

tax?

(a) Yes (b) No

Correct answer (a)







more.

In this case, SM Corporation is not liable to pay advance tax in respect of factory business.

However, in respect of commission income it is liable to pay advance tax since its advance

tax liability exceeds Rs. 10,000.




Q69. SM Ltd. is engaged in the business of cement manufacturing whose turnover from

this business during the previous year 2012-13 was Rs. 98,84,484 and its taxable income

was Rs. 15,00,000. It wants to adopt the provisions of section 44AD. Hence, it is not

liable to pay advance tax.


(a) True (b) False

Correct answer (b)


An assessee, being a company, is not eligible to adopt the provisions of section 44AD.

Hence, it has to pay advance tax during the previous year 2012-13 since its income-tax

liability exceeds Rs. 10,000.




Q70. Mr. Raja is running a factory. The turnover of the factory during the previous

year 2012-13 is Rs. 84,52,000 and he declares income as per the provisions of section

44AD. He is also engaged in the business of plying, hiring or leasing of goods carriages.

He owns 8 heavy goods vehicles and declares income as per the provisions of section

44AE. In this case, what will be the amount of advance-tax he is liable to pay for the

previous year 2012-13?

(a) Nil (b) Rs. 6,76,160

(c) Rs. 40,000 (d) Rs. 10,000

Correct answer (a)







more. In other words, even in respect of business for which the assessee has adopted the

provisions of presumptive taxation scheme of section 44AE, he is liable to pay advance-tax if

his advance-tax liability exceeds Rs. 10,000.

In this case, Mr. Raja is not liable to pay advance tax in respect of factory business.

Moreover, in respect of business of plying, hiring or leasing goods carriages also he is not

liable to pay advance tax since his advance tax liability does not exceed Rs. 10,000.



amount of advance-tax. The other options, viz., option (b), (c) and (d) giving the incorrect

amount are not correct.


Documents

Advance Learning on Section 44AD (Practical) · Advance Learning on Section 44AD (Practical) In this advance learning session we will learn various practical aspects of the provisions