Understanding Section 44AD for Businesses
Section 44AD is designed to relieve small resident business entities (Proprietorships, Partnerships, but excluding LLPs) from the compliance burden of maintaining formal double-entry books of accounts and undergoing statutory tax audits.
Turnover Limit & Deemed Profit Percentages
- Turnover Limit: Up to ₹3 Crores per financial year (provided cash turnover is 5% or less; otherwise ₹2 Crores).
- Digital Receipts: Minimum deemed profit of 6% on turnover received through banking channels, UPI, debit/credit cards, or account payee cheques.
- Cash Receipts: Minimum deemed profit of 8% on non-digital cash sales.
Who is Ineligible for Section 44AD?
- Professionals covered under Section 44AA / 44ADA.
- Individuals earning agency or commission income.
- Businesses operating Goods Transport Agency (GTA) covered under Section 44AE.
- Limited Liability Partnerships (LLP) and Private Limited Companies.
The 5-Year Lock-in Rule
Under Section 44AD(4), if you opt for the scheme in one year and subsequently opt out in any of the next 5 assessment years, you cannot re-enter Section 44AD for the subsequent 5 years and must undergo a mandatory Section 44AB tax audit if income exceeds the basic exemption limit.