What are the deductions allowed when an assessee opted for section 44AD

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  • Last Updated on 15 June, 2022

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Income-tax Act allows small and medium enterprises to pay tax on presumptive basis. This scheme has been introduced to reduce burden of compliance of the small business entities. Thus, if an entity opts for presumptive tax scheme, it can pay tax on presumption basis without maintaining the books of account.
 
Section 44AD is a presumptive taxation scheme. It is applicable to an Individual, HUF, Partnership Firm excluding LLP engaged in any business. Under this scheme, the eligible taxpayers can compute the taxable income on presumptive basis if turnover of business does not exceed Rs. 2 crores during the financial year. The presumptive income shall be 8% of total turnover of the year from such business. However, in respect of turnover or receipts, which are received by an account payee cheque or bank draft or through electronic clearing system, the presumptive income on that portion shall be 6% of total T.O.
 

Deductions allowable from presumption income:

The presumptive income computed under section 44AD is treated as net income for the business and no further deduction is allowed under section 30 to 38 of the Income-tax Act, 1961. However, the person can claim deduction available under chapter VI-A from presumptive income. Here are the list:

Deductions

Description

 

80C

 

Deduction for investments in insurance policies, payment of tuition fees of children repayment of housing loan, etc. The deduction is restricted to Rs.1.5 Lakh

 

 

80CCC

 

 

Contribution to certain funds of LIC or any other insurer.

 

80CCD(1)

Employee’s contribution towards NPS, which shall not exceed:

a. 10% of Salary in case of employee &

b. 20% of GTI in other case

 

 

80CCD(1B)

 

Contribution towards NPS by any individual. Deduction shall not exceed Rs.50,000.

 

 

80CCD(2)

 

Employer’s contribution towards NPS, which does not exceed 10% of his salary in previous year.

 

 

80D

 

Deduction for expenditure on medical insurance, CGHS, health checkup, medical expenditure.

 

 

80DD

 

 

Expenditure on medical treatment. Deduction shall be Rs. 75000 in case of disability & Rs.1,25,000 in case of severe disability.

 

80DDB

 

Medical treatment of specified diseases. The deduction shall be equal to the amount paid or Rs.40,000, whichever is less.

 

 

80E

 

Interest on education loan

 

 

80EE

 

Interest on loan to acquire house property for a maximum amount of Rs. 50,000.

 

 

80G

 

 

Donations to the extent of 50%/100% of the net qualifying amount.

 

80GG

 

 

Rent paid

 

80GGC

 

 

Sums to political parties/ electoral trust

 

80TTA

 

 

Interest on deposits in savings account. A deduction shall be allowed up to Rs. 10,000.

 

80TTB

 

 

Interest on deposits with bank/ post office/co- operative societies in case of senior citizens. Allowed a deduction of Rs.50,000.

 

80U

 

Medical disability for an amount of Rs. 75,000 or Rs. 1,25,000 in case of severe disability.

 
Note: a) If the assessee is a partnership firm, then it can’t claim deduction with respect to interest or remuneration paid to the partners under section 40(b) b) No deduction under Sections 10A, 10AA, 10B, 10BA shall be availed to get the benefit of section 44AD. Further, deductions cannot be claimed under Section 80HH to 80RRB.

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