Section 44AD(6) - Non-applicability of Presumptive Taxation Scheme

Section 44AD of the Income-tax Act,1961 (the Act) deals with taxation scheme for computing profits and gains of business on a presumptive basis. It also specifies certain businesses that are ineligible to opt for the presumptive taxation scheme under Section 44AD(6). In this article, we will understand the following:

• Section 44AD
• Non-applicability of section 44AD
• Meaning of commission business
• Professions on which Section 44AD is not applicable
• Meaning of agency business
• FAQs

Section 44AD

It states that a resident individual, HUF or partnership firm engaged in certain eligible businesses with a turnover of less than Rs. 2 crores (Rs. 3 crores if cash receipts do not exceed 5% of the total receipts) can opt for presumptive taxation scheme, i.e. they must declare profits of at least 8% of turnover/gross receipts for non-digital transactions and 6% for digital transactions. 

Meaning of Eligible Business

Eligible business for Section 44AD means any business except the business of plying, hiring or leasing goods carriages referred to in Section 44AE, and the total turnover or gross receipts of business does not exceed Rs. 2 crores (Rs. 3 crores if cash receipts do not exceed 5% of the total receipts).

Non-applicability of Section 44AD

The presumptive taxation scheme under section 44AD shall not apply to the following: 

• Persons engaged in the business of commission or brokerage
• Persons engaged in the profession as referred to in Section 44AA(1)
• Persons carrying on any agency business

Meaning of Commission Business

Commission or brokerage means payments received for services provided on behalf of someone else, excluding professional services and transactions involving securities. This includes payments for helping buy or sell goods or facilitating transactions involving valuable items but does not cover financial securities like stocks.

Professions referred to in Section 44AA(1)

The term "professional services" encompasses a wide range of services rendered by individuals in professions such as legal, medical, engineering, architecture, accountancy, technical consultancy, interior decoration and advertising. The Act also extends this definition to include professions notified by the Board, such as authorised representatives, film artists, company secretaries, individuals in the information technology sector, sportspersons, commentators, event managers, anchors, umpires and referees, physiotherapists, coaches and trainers, team physicians, and sports columnists.

Meaning of Agency Business

An agency business is a business that earns income primarily by acting as an agent or intermediary rather than directly conducting trading or manufacturing activities. They earn through brokerage, commission or fees for their services. For example: A real estate agent facilitates the sale of the property but does not own it.