Presumptive Tax Scheme for Professionals | Section 44ADA

Section 44ADA – Presumptive Tax Scheme for Professionals

-A scheme for presumptive taxation was introduced under section 44ADA from the FY FY 2016-17.

-Section 44ADA provides a simple method of taxation for small professionals. Section 44ADA offers a scheme of presumptive taxation of profits and gains arising from professions mentioned under Section 44AA(1) of the Income Tax Act, 1961.

-The benefit of section 44ADA can be taken only by those specified professionals whose annual gross receipts are under Rs 50 lakh.

-The following Indian assesses are eligible: Individuals, Hindu undivided families ,Partnership firms (note that limited liability partnerships[LLP] are not eligible)

-Below mentioned Professionals under Section 44AA of the Income Tax Act, 1961, whose total gross receipts are less than Rs 50 lakh in a year are the eligible beneficiaries.

[NOTE : Union Budget 2021 Outcome: The presumptive taxation scheme under section 44ADA was previously applied to all the resident professionals referred to in section 44AA. Now onwards, it applies only to the resident individual, Hindu Undivided Family (HUF) or a partnership firm, other than LLP.]

Professionals engaged in the following professions are eligible:

• Interior decorations
• Technical consulting
• Engineering
• Accounting
• Legal
• Medical
• Architecture
• Other professionals, as mentioned below:
• Movie artists includes a producer, editor, actor, director, music director, art director, dance director, cameraman, singer, lyricist, story writer, screenplay or dialogue writer and costume designers
• Authorised representative means a person who represents another person for a fee before a tribunal or any authority constituted under any law. It does not include an employee of the person so represented or a person who is carrying on the profession of accountancy
• Any other notified professionals

Presumptive income offered?

Higher of the following is offered as presumptive income: 50% of the total receipts from the profession Income offered by the assesse from the profession.

BENEFITS

By following Section 44ADA, an assesse would get the following benefits:

• No need of maintaining books required under Section 44AA
• No requirement of having accounts audited under Section 44AB

NOTE :If an assessee meets the following criteria, then he/she must maintain books and get accounts audited under section 44AB:

• Income from the profession is offered at a lower rate than 50% of the gross receipts
• Total income of the assesse is more than the basic exemption

Implications of choosing section 44ADA

• All deductions for business expenses are deemed to have been allowed. Once profits are taxed at 50% of the gross receipts, the balance 50% is deemed to be allowed towards all the business expenses of the assesse.
• Business expenses may include consumables, cost of services taken from another professional, daily expenses, books, stationery, telephone charges, depreciation on assets (laptop, vehicle, printer etc.) and any other expense incurred to carry on the profession.
• The written down value (WDV) of assets for tax purpose shall be calculated as of the depreciation has been allowed each year. This WDV would be the value of the asset for tax purpose in a case where the asset is sold later by the assesse.

ITR – 4

• From A.Y. 2019-20 this return can be filed only by :-
  • Resident
  • Individual, HUF and Firm (Other than LLP)
  • Whose total income is up to Rs. 50 Lakhs and has business income u/s. 44AD, 44ADA or 44AE

But an individual who is a director in a company or has invested in unlisted equity shares cannot file this return

• Not Applicable to Start up Employees opting for ESOP Deferment