Section 44ADA: Special provision for computing profits and gains of profession on presumptive basis
This article is focusing on Section 44ADA which is introduced by Finance Act, 2016. This is a special section for computing profits and gains of profession on presumptive basis for certain professionals referred to in section 44AA(1) of Income Tax Act whose total gross receipts from profession does not exceed Rs. 50 lakhs in a financial year. This article will cover the applicability of this section, monetary limit on gross receipt, allowable % of profit for filing return on presumptive basis, etc.
If the following conditions are satisfied then that person is considered as eligible:
1. Assesse should be a resident
2. Assesse should be engaged in profession referred to in Section 44AA(1) (Note 1)
3. Gross receipt of assessee from profession does not exceed Rs 50 lakhs
1. Profession as per Section 44AA(1) are as under:
If the above conditions are satisfied and assessee wants to opts for presumptive taxation then he should declare 50% of the gross receipts from profession as Income from business under presumptive scheme.
Please note that, the assessee can voluntarily declare a higher income in his return.
1. All deductions from sections 30 to 38 (including depreciation and un-absorbed depreciation / allowances) are deemed to have been already allowed and no further deduction is allowed under these section. Even salary or interest to partners is not deductible.
2. Written down value (WDV) of depreciable assets shall be recomputed deducting depreciation which is deemed as allowed
The following consequences are applicable if the taxpayer declares his income which is lower than 50% of gross receipts:
a) The assessee will have to maintain the books of accounts as per section 44AA, if his income exceeds the exemption limit
b) The assessee will have to get his books of account audited under section 44AB, if his total income exceeds the exemption limit
(1) Notwithstanding anything contained in sections 28 to 43C, in the case of an assessee, being a resident in India, who is engaged in a profession referred to in sub-section (1) of section 44AA and whose total gross receipts do not exceed fifty lakh rupees in a previous year, a sum equal to fifty per cent of the total gross receipts of the assessee in the previous year on account of such profession or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the assessee, shall be deemed to be the profits and gains of such profession chargeable to tax under the head “Profits and gains of business or profession“.
(2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed.
(3) The written down value of any asset used for the purposes of profession shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.
(4) Notwithstanding anything contained in the foregoing provisions of this section, an assessee who claims that his profits and gains from the profession are lower than the profits and gains specified in sub-section (1) and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (1) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.]
(a) carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds one crore rupees in any previous year ; or
(b) carrying on profession shall, if his gross receipts in profession exceed [fifty] lakh rupees in any previous year; or
(c) carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AE or section 44BB or section 44BBB, as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year; or
(d) carrying on the [profession] shall, if the profits and gains from the [profession] are deemed to be the profits and gains of such person under [section 44ADA] and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his [profession] and his income exceeds the maximum amount which is not chargeable to income-tax in any [previous year; or]
[(e) carrying on the business shall, if the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year,] get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed:
[Provided that this section shall not apply to the person, who declares profits and gains for the previous year in accordance with the provisions of sub-section (1) of section 44AD and his total sales, turnover or gross receipts, as the case may be, in business does not exceed two crore rupees in such previous year:]
Provided [further] that this section shall not apply to the person, who derives income of the nature referred to in section 44B or section 44BBA, on and from the 1st day of April, 1985 or, as the case may be, the date on which the relevant section came into force, whichever is later :
Provided [also] that in a case where such person is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and furnishes by that date the report of the audit as required under such other law and a further report by an accountant in the form prescribed under this section.
Explanation. — For the purposes of this section, —
(i) “accountant” shall have the same meaning as in the Explanation below sub-section (2) of section 288;
(ii) “specified date”, in relation to the accounts of the assessee of the previous year relevant to an assessment year, means the due date for furnishing the return of income under sub-section (1) of section 139.
1. As per Section 44AB(d) audit is mandatory for profession if the total income exceeds maximum amount not chargeable to tax and the person claimed such profit lower than presumptive income.
2. In case of partnership Firm (Including LLP) & Companies audit is mandatory if profit is claimed lower than presumptive income (i.e. lower than 50% of Gross Receipt) because in case of partnership Firm (Including LLP) & Companies there is no basis exemption limit.
So, be careful while filling the return of professional & take care of the provision of Section 44ADA.
(Republished with Amendments)