Section 44AD (Practical)

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?
**
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.

Section 44AD (Practical)

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Section 44AD (Practical)

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Provisions relating to maintenance of books of account

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

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