Presumptive Taxation Scheme For Professionals – Section 44ADA

Article explains Concept of Presumptive Taxation For Professionals, Applicability of Presumptive Taxation For Professionals, Presumptive income from Profession under Section 44ADA, Expenses not allowed against Income deemed as Presumptive under Section 44ADA, Maintenance of books of account for professionals Opting for Presumptive Taxation, Audit Requirements under Section 44AB for Professionals. Payment of Advance tax by those opting for Presumptive Taxation under Section 44ADA and Our Comments on Presumptive Taxation under Section 44ADA.

♦ Concept of Presumptive Taxation For Professionals

Presumptive taxation Scheme for professionals was introduced w.e.f. 01/04/2017 to bring parity between small businessman who enjoy presumptive taxation u/s 44AD and small professionals. The main aim was to reduce compliance burden and drive the profession with ease.

♦ Applicability of Presumptive Taxation For Professionals

 It is applicable to-

1. Individual, HUF and Partnership Firms (except LLP). Budget 2021 made clear that this section will not be applicable to Limited Liability Partnership (LLP). However, logically HUF cannot do business or profession.

2. Assessee engaged in following profession-

• Interior decorations
• Technical consulting
• Engineering
• Accounting
• Legal
• Medical
• Architecture
• Other professionals, such as Movie artists
• Authorised representative
• Any other notified professionals

3. Assessee whose gross receipt from profession does not exceeds Rs.50lacs.

♦ Presumptive income from Profession under Section 44ADA

50% of gross receipts from profession or amount earned by assessee whichever is higher shall be presumed to be income from profession.

♦ Expenses not allowed against Income deemed as Presumptive under Section 44ADA

1. No expenses shall be allowed from 50% income. It shall be considered that all expenses have been deducted. It means tax is required to be paid on 50% of Gross receipts.

2. No depreciation shall be allowed. WDV of assets shall be taken as depreciation already allowed.

♦ Maintenance of books of account for professionals Opting for Presumptive Taxation

In case of a person engaged in a specified profession as referred in section 44AA(1) and opts for presumptive taxation scheme of section 44ADA, the provision of section 44AA relating to maintenance of books of account will not apply. In other words, if a person opts for the provisions of section 44ADA and declares income @50% of the gross receipts, then he is not required to maintain the books of account in respect of specified profession.

♦ Audit Requirements under Section 44AB for Professionals

If profits are lower than 50% prescribed limit and income is above taxable limit than assessee shall be entitled to maintain books of accounts and gets its accounts audited u/s 44AB of the Act.

♦ Payment of Advance tax by those opting for Presumptive Taxation under Section 44ADA

Any person opting for the presumptive taxation scheme under section 44ADA is liable to pay whole amount of advance tax on or before 15th March of the previous year. If he fails to pay the advance tax by 15th March of previous year, he shall be liable to pay interest as per section 234C.

♦ Our Comments on Presumptive Taxation under Section 44ADA

This section is of great benefit for taxpayers engaged in profession. Many people make cash deposit upto specified limit and declare income as presumptive income in return of income but when cases are selected for scrutiny they fail to get verify the same from Assessing Officer as a result of which entire cash deposit is treated as undisclosed income and tax is leived @ 80% and above. Presumptive taxation scheme is a benefit available to taxpayers. It should therefore be used in good sense in our favour.

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The above comments do not constitute professional advice. The Author can be reached at companyfinancialtree@gmail.com or visit website www.financialtreecompany.com . My name is CA Divya Agrawal and I am Practising Chartered Accountant, CEO and Founder of FINANCIAL TREE COMPANY (An online return filing and Tax Consultancy Company). We also upload educational videos in You tube and name of our channel is FINANCIAL TREE COMPANY. Our aim is to help people in improving their financial health by spreading knowledge and love. Stay Financially Fit and Healthy.