A few individuals do not qualify for the scheme benefits under Section 44AD, including-
Section 44AD benefits are not available for firms and individuals associated with professional services and earn income through brokerage or commission. For such people, the Indian Government offers Section 44ADA for a presumptive scheme.
Individuals involved with an agency business
People are eligible to claim deductions under 10AA or Chapter VIA under Part C deductions against specific income.
Suppose individuals go for a presumptive scheme for one financial year and provide turnover details as per the scheme and fail to file the return for 5 consecutive years under the scheme of 44AD. In that case, they are not eligible to claim benefits of the provisions of 44Ad for the next 5 assessment years (starting from the year in which profits were not provided according to the scheme).
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For better understanding, let us cite an example.
According to the provisions of Section 44AD, let's consider the scenario of Mr. B. For the assessment year 2021-2022, Mr. B opted to be taxed under the presumptive scheme. He declared an income of ₹10 lakhs based on a total turnover of ₹1.2 crores.
In the subsequent two assessment years, 2022-2023 and 2023-2024, Mr. B continued to provide income proof as per the provisions of Section 44AD. However, for the assessment year 2024-2025, he decided to declare his income under a different scheme, not opting for the presumptive scheme. In this case, he declared an income of ₹5 lakhs against a total turnover of ₹1.6 crores.
Since Mr. B did not declare his income under the presumptive scheme (Section 44AD) for five consecutive years, he will not be eligible to file an income tax return under the presumptive scheme (44AD) for the assessment years from 2025-2026 to 2029-2030.
Note: The illustration is based on regulations dated 20/12/2022 and may change if made any modifications.
Once individuals are aware of the eligibility, they must gain clarity regarding different features of Section 44AD to steer clear of hassles.