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Microlesson · 5-min read

Common rules for presumptive sections (44AD/44ADA/44AE)

# Common Conditions Across the Presumptive Sections

These clarifications apply across Sections 44AD, 44ADA and 44AE.

## Deductions deemed allowed

  • All deductions u/s 30 to 38 (including depreciation) are deemed to have already been allowed. No further claim is possible.
  • No set-off of current or unabsorbed depreciation separately.
  • However, business losses u/s 72, 73 and 73A can be set off against presumptive income.

## Depreciation and WDV

  • The closing WDV of the block of assets is deemed to have been adjusted by notional depreciation — i.e. the WDV is reduced as if depreciation had actually been claimed during the presumptive years. This matters when the assessee later exits the scheme and computes actual depreciation/capital gains.

## Partner's interest and remuneration

SectionInterest/remuneration to partners
44ADNot deductible
44ADANot deductible
44AEAllowed, subject to limits in Section 40(b)

## Books and audit

  • If income is declared on a presumptive basis, no books need be maintained and tax audit does not apply.
  • Under 44ADA and 44AE, if a lower income than presumptive is declared, books and audit become mandatory where total income exceeds the basic exemption limit.

## Payment of advance tax

SectionAdvance tax
44AD & 44ADASingle instalment — 100% by 15th March of the financial year
44AEAll 4 instalments apply (normal schedule)

Worked example

### Example 1

Notional depreciation on exit. A business under 44AD owns machinery (block WDV ₹10,00,000, 15% rate). For each presumptive year, depreciation is deemed allowed, so opening WDV for the next year is reduced by 15% — ₹10,00,000 − ₹1,50,000 = ₹8,50,000 — even though no depreciation was separately claimed. On later exiting the scheme, depreciation is computed on the reduced WDV, not on ₹10,00,000.

### Example 2

Set-off of brought-forward loss. An assessee declares ₹6,00,000 presumptive income u/s 44AD and has a brought-forward business loss of ₹2,00,000 u/s 72. The loss can be set off, leaving ₹4,00,000 taxable — depreciation, however, cannot be separately claimed.

⚠️ Common exam mistakes

  • Claiming depreciation separately on top of presumptive income — it is deemed already allowed.
  • Believing the WDV is unaffected during presumptive years — it is reduced by NOTIONAL depreciation each year.
  • Refusing set-off of brought-forward business losses — losses u/s 72/73/73A CAN be set off against presumptive income.
  • Treating advance tax for 44AE the same as 44AD/44ADA — 44AE requires all four instalments, not a single 15-March payment.
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