Section 44D for Income Tax: All You Need to Know

Section 44D allows businesses and professionals to pay taxes on the basis of “presumed profits”. A major advantage of this section is that the concerned assessee doesn’t have to maintain the records of their business accounts and transactions.

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Businesses Eligible for Section 44D

Only eligible assessees can enjoy the benefit of Section 44D. These are individuals, HUF or a partnership. However, the following can’t claim the benefit of this section:

• NRIs or NRI businesses
• HUFs who are also NRIs
• LLP (Indian and foreign)
• Artificial juridical person
• Association of Person
• Local authorities and co-operative societies
• Individual, HUF, business claiming deduction under chapter III pertaining to hardware and software technology parks or free trade zones (i.e. Deduction under section 10A, 10AA, 10B, 10BA)

Apart from being an eligible assessee, a person should also have an eligible business/profession. An eligible business/profession would be one on which none of these apply:

• A person earning agency income.
• A person with a profession under section 44A (1).
• A person doing a business of plying, hiring or leasing of goods.
• A business whose total turnover is above Rs. 2 crores during an AY

So, every other business that remains can claim the benefit of Section 44D.
Section 44D Benefit with Example.

Businesses eligible for Section 44D not only have to deal with limited paperwork and maintain few records, they can also show lower profits than actual profits earned. There are two aspects in this regard:

• For businesses, the profits are assumed at 8%.
• For professionals, the profits are assumed at 50%.

Thus, even when a business/professional is making more profits, they can show less and so pay less tax.

For example, Mr. Kumar had an annual turnover of Rs. 10 lakhs on which he made 10% i.e. 1 lakh. However, since he is eligible for Section 44AD, his profits will be presumed to be 8% only i.e. Rs. 80,000 which is what he can show in his ITR.