prpri Section 44ADA – Presumptive Tax Scheme for Professionals Section 44ADA – Presumptive Tax Scheme for Professionals
CA Prasanth Srinivas

CA Prasanth SrinivasSection 44ADA is inserted after section 44AD of Income TAx Act, 1961 with effect from financial year 2016-17 and provides Special provision 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.

Extract of Section 44ADA

Special provision for computing profits and gains of profession on presumptive basis.

After section 44AD of the Income-tax Act, the section 44ADA shall be inserted with effect from the 1st day of April, 2017, namely:—

44ADA. (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.]

Analysis of Provisions of New Section 44ADA

Why this section is proposed?
  • This section was proposed in line with the recommendation of Justice Easwar Committee for simplification of taxation of professionals
  • Following objects are stated to be achieved through this proposal
    • To bring parity between small businessen (who enjoy presumptive taxation u/s 44AD) and small professionals
    • To reduce compliance burden of small professionals
    • To facilitate ease of doing profession
How this is sought to be achieved? This is sought to be achieved by inserting Section 44ADA in the Income Tax Act
Who is the eligible assessee? Resident assessee who is

  • Individual (or)
  • Hindu undivided family (or)
  • Partnership firm (other than limited liability partnership)
Who are the beneficiaries? Certain professionals referred to in section 44AA(1) of the Income Tax Act whose total gross receipts from profession does not exceed Rs. 50 lakhs in a financial year.
Who are the eligible professionals? Persons engaged in any of the following professions:

  • Legal
  • Medical
  • Engineering
  • Architecture
  • Accountancy
  • Technical consultancy
  • Interior decoration
  • Other notified professionals
    • Authorized representatives
    • Film Artists
    • Certain sports related persons
    • Company Secretaries and
    • Information technology
How much is the presumptive income to be offered? Higher of:

  • 50% of the gross receipts from profession (OR)
  • Income from profession offered by the assessee
Benefits of following this proposed section
  • Assessee need not maintain books required to be kept u/s 44AA
  • Assessee need not get the accounts audited u/s 44AB
When shall the assessee be required to maintain books and to get the accounts audited? If both the following conditions are satisfied, maintenance of accounts and audit are warranted:

  • Income from profession is offered at a rate lower than 50% of gross receipts AND
  • Total income of the assessee exceeds the basic exemption limit
If the assessee follows this section, following items shall be deemed to be allowed
  • All deductions from sections 30 to 38 (including depreciation and un-absorbed depreciation / allowances) shall be deemed as allowed; and
  • Written down value (WDV) of depreciable assets shall be recomputed deducting depreciation which is deemed as allowed. E.g. If WDV (10% block) as on 01.04.2018 is Rs. 1,00,000, the depreciation deemed as allowed will be Rs. 10,000 and accordingly WDV as on 31.03.2019 will be Rs. 90,000.
Effective date The new section is proposed to be effective from 01.04.2017 (i.e. from Assessment Year 2017 – 18). In other words, advance tax in financial year 2016 – 17 may have to be calculated accordingly.
Author’s notes
  • The decision as to whether this provision is to be adopted or not varies from case to case and the decision depends on the following parameters:
    • Quantum of actual expenditure (i.e. not advisable for a professional having small net profit ratio)
    • Interest on borrowings
    • Depreciation available
    • Quality of accounting systems etc.
  • Businessmen covered u/s 44ADA can pay the whole of advance tax by March 15.
  • There is no provision in section 44ADA permitting a professional firm to deduct interest / remuneration paid to partners from the presumptive income offered.
  • Whether or not the professional firm follows Section 44ADA, its partners can opt Section 44ADA with respect to working partners’ salary / interest received from the said firm
  • Other suggestions and comments are most welcome

(Author can be reached at ssayyarandco@gmail.com)

(Republished With Amendments)

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178 Comments

  1. Ankit says:

    If I am consultant as a doctor in any hospital and also I have a clinic . Aggregate income from both the source exceed 50 Lakh . Will I have right to take benifit s of 44 ADA because there is not any clarification about the same

  2. K V K Thampuran says:

    My wife is a Doctor employed in State Govt. In addition to salary, she is getting fee for supervising examinations. They pay fee after deducting TDS u/s 194J .It is only small amount below Rs. 20000/- . Till now she is filiny ITR 1. Whether she can now file ITR 4 under sec 44ADA. If so merits & demerits. Please give me an answer

  3. N Manohar Rao says:

    Sir I am retired from a bank n getting monthly pension of Rs.45000. Now I am working as consultant in a mutually aided cooperative society and I am paid Rs.60000/-per month as consultancy charges. Can I declare this income under section 44 A D A and show 50%if income?

  4. RAJAKUMAR R says:

    Post retirement, i am operating as a Freelance HR consultant and am advising a couple of firms and in receipt of remuneration for the same. Do I qualify as a ” Professional ” and can i deduct my business expenses like Communication expenses, Travel/ Fuel bills, Lunch bills, purchase of stationary etc from such earnings.
    2. Can I file a composite ITR?
    3. Do I club this income with my Pension income, Interest income etc
    4. Do i need any separate registration (as a firm) for the same?

  5. CA. bhavesh Savla says:

    Can you pls clarify where it is mentioned in Section 44ADA that LLP and pvt ltd companies are not eligible for presumptive tax benefits. That restriction is there specifically in 44AD but not there in 44ADA.

  6. seema S says:

    I’m a consultant doctor working in a diagnostic center and received Rs. 14lakh as consultancy fee in last financial year. Can I avail presumptive taxation under section 44ada and show Rs 7 lakh as net taxable amount?

  7. Sanjay says:

    Sir,
    My gross receipt is Rs.14 Lacs from professional fees in FY 18-19. My expenses are around 3 Lac. My net book profit is Rs.11 Lacs. Can I eligible u/s 44ADA? Can pay straight tax on Rs.7 Lacs (i.e.50% of receipt) and don’t pay tax on Rs.11 Lacs? Please guide.

  8. Pramod Gúpta says:

    I have a software development business, having turnover of 40Lac. I am paying salary to my developer Rs.18 lac per annum and other business expenses comes to Rs 10 lac per annum, all by cheque. I do not want to opt for 44ada as my taxable income is less than 50%. If I don’t opt for 44ada, is it compulsory for me to get my books audited. As I am in software, but I am running a business, what is my category, professional or businessman?

  9. shiju says:

    Till last financial year 2017-2018 i was salaried. from april 2019 i started to work for a foreign company as their representative. i will be paid for every 4 weeks as salary or rep fee + travel allowance to meet the clients as per their instruction. the billing should be done once in 3 months or 6 months as suggested by the company. so pls suggest me should i opt for UNDER SECTION 44ADA on the gross income less than 35 lac, which includes bonuses or incentives, need your suggestion as the enitire services are rendered to a foreign company and the payments will be remitted. should i register for GST. SHOULD i need to maintain books of accounts. awaiting for you reply a the earliest.

  10. siji says:

    I am earning regular quarterly income by giving consultancy services for a foreign company . My annual receipts will be around min Rs. 28.00 lac m to 40 lac per annum. Can I avail the benefit of section 44ADA i.e. presumptive taxation scheme.

  11. shiju says:

    planning to start a small business for a foreign company in india as a rep. the total annul billing would be min 30 lakhs and max 45 lakhs. so pls advice which type of firm i should register and do i need to maintain the books of accounts

  12. Rana Beteille says:

    A professional claiming presumptive income under 44ADA is not required to maintain books under 44AA – where is it mentioned in the Act or in the Rules. Is it an interpretation of the author without any legal pronouncement or is there any clear legal mandate to that effect

  13. PUNEET MADAN says:

    I am earning regular monthly income by giving parenting tips online in case of new born babies. My annual receipts will be around Rs. 5.50 lac. Can I avail the benefit of section 44ADA i.e. presumptive taxation scheme.

  14. Varun Prabhu says:

    Under Normal Taxation:
    My gross revenue this year from projects (am a freelance writer) +interests is 4.8L. My expenses for the same (marketing, advertising, internet usage, artwork(yes, I love collecting art) that I am using in my products (to advertise, to showcase) amounts to 1L. My net profit accumulated is 3.8L. Under normal circumstances, I assume that my taxable income is 3.8L and I have to pay the taxes via the current slab rate and file ITR-4.

    I am thinking of using the presumptive taxation scheme under 44ADA. This means I assume that 50% of 4.8L, ie 2.4L as net profit. I guess that means 2.4L is my taxable income, but then the tax here is 0 according the current IT slab rate.

    Question is, should I opt for the presumptive tax scheme as compared to the normal computation, the net taxable income is not less than half of the gross income computed under presumptive scheme? If presumptive scheme is opted, should I be paying tax or not? Because 2.4L is 0.1L below the min tax bracket. Or should I just go with normal taxation and pay tax on the 2.8L? In this case, does this mean I am entitled to a rebate/refund?

  15. THOMAS IRWIN DSOUZA says:

    Dear Sir,

    The total invoice value of my services from August 2018 to March is expected to be 50,23,260 Rupees inclusive of GST Amount.
    The total value of my services without GST Amount is 42,57,000 Rupees.
    Is Section 44ADA applicable to me.
    Whereas the law says as below.

    How much is the presumptive income to be offered? Higher of:
    50% of the gross receipts from profession
    (OR)
    Income from profession offered by the assessee

    Where my income from services is 42,57,000 Rupees ONLY, the balance amount of GST is being deposited in the GST account of the company where we offer services. We are just acting like a postman in this process, and there is no income in the GST claims and depositing in the treasury.

  16. Ashima Ahuja says:

    I am a post graduate of National Institute of Fashion Technology. This FY I have been contracted by a big store chain of US to develop & assess the vendors for supplying goods to them. I get a fixed monthly sum in USD with annual sum being < 25 INR. Can I utilize sec 44ADA under Technical Consultancy.

  17. Sushil Jain says:

    If my accounts are audited u/s 44ADA, whether provision of TDS deductions will be applicable on me?
    If yes, than for all sections or some particular section?

  18. Harshil says:

    Hi,
    In the Income Tax Department Document,
    there is a clause that 44AD is not applicable to LLPs.
    But they have not written anything about section 44ADA.
    My question is, as an LLP, can i file my Income Tax using 44ADA.
    Follow up question, for filing advance tax for this financial year, will advance tax also be computed on the basis of section 44ADA.

  19. R K Singh says:

    I worked as a technical consultant for 4 months last year and with standard deduction of TDS 10% I was getting my money. After 4 months I am working as a company employee and getting salary.
    Now under which head I need to show my 4 months income.

  20. Ramdas n says:

    My Auditor is not in favour of filing my return under se 44ada. He says queries will come later on asking for cash flow statement. If no suitable explanation is provided I will have to pay tax at 70% for the disputed amount plus penalty. Your comments

  21. Sarang Bhusari says:

    My Wife is taking Home Tutions for Music (Singing).

    Her Monthly Receipts is approx. Rs.10,000 to 15,000 depending on the number of students. So, yearly Gross Receipts would be approx. Rs. 1.2 Lacs to Rs. 1.8 Lacs.

    Can I E-File ITR-4 & show the transactions under Section 44ADA & show presumptive income as 50% of Gross Receipts ? Do I also need to show Balance with Bank & Cash in Hand ?

    Or I have to E-File ITR-1 & show it as “Income from other sources” ?

    Please help me & provide your precious guidance.

  22. DR. BISWAMBHAR AGARWAL says:

    1)If I filed income tax returns last year under section 44 ada using ITR 4S and and this year if I am compelled to file using ITR 3 due to additional short term capital gain do I have to get accounts audited due to change in ITR form.
    2)if I file using ITR 3 do I need to keep accounts and if choosen for scrutiny and I claim as expenses as 50% but actual expenses are less, what will happen

  23. Dr C K Behany says:

    I am a medical practitioner having gross receipts of 18 lakhs last year and expenses of Rs.7 lakhs. Conventionally, I am to pay tax on profit of 11 lakhs.
    If I shift to 44ADA, then I will have to pay tax on profit of Rs. 9 lakhs only (50% of receipts) thereby saving tax on Rs. 2 lakhs.
    Please comment specifically whether my understanding is correct and this can be done.
    My CA is of the opinion that this is not possible and I will have to pay tax on the income of 11 lakhs even if I file return u/s 44 ADA.

  24. P D says:

    Where is this written that assessee shall not be liable to maintain books if he opts for taxation u/s 44ADA?

    I don’t see any such provision u/s 44AA or 44ADA.

  25. CA. M. Lakshmanan says:

    The main draw back in this presumptive tax is that partners’ salary is not allowed and as such tax is payable @ 50% of gross receipts and the salary is paid to partners after firm tax.
    Whether this salary is exempt in the hands of the partners is not provided in the law. In the normal course i.e. not falling u.s 44ADA there are limits for partners’ salary which can be deducted before calculating taxable income and this salary and interest is taxable in partners’ hands.

  26. sriram says:

    If i file my return taking 50 % as income and my prof receipts is 20 lakhs still i need to maintain books to enable the officer to compute my income in excess of 50 % which i returned

  27. Rajesh Pahadi says:

    Assessee filing under 44ADA, is it necessary to incur the expenses or without incurring any expenses still income can be shown 50% or more?

  28. Shyam says:

    I need to use section 44ADA in ITR-3 since I have a foreign bank account with minimal balance.

    In ITR-3
    P&L line 53(ii)a, a professional would enter his Gross Receipts

    P&L line 53(ii)b, he would enter 50% of gross receipts as Gross Profit

    After doing this, in schedule BP line 4 is dimmed and shows 0. Is this OK or I need to do something else to ensure that line 4 shows the full amount.

    How will the IT officer know that I am claiming 44ADA if line 4 shows 0 and I am not able to modify it? Thank you.

  29. Dhosp says:

    I am a partner in a firm which runs a medical clinic/small hospital. Other partner is a practising medical doctor while I am an investor and manages the space. Can my partnership firm file Income Tax return under Section 44ADA using form ITR-4 in AY-18-19? If not any other section which allows not to keep books of accounts?

  30. Srikanth says:

    Dear Sir
    I am an accountant and get retainership fee, I had not opted 44ADA while filing returns for FY 2016-17, can I opt for FY 2017-18.

  31. Anand Shah says:

    I AM DENTIST WITH A TURNOVER OF 15,22,000. MY NET PROFIT IS 5,19,264 WHICH IS 34 %. Now every year my NP ratio is more than 50% but this year, since i have taken commercial loan for purchasing my clinic due to which my ratio came down to 34 %. My accounts are maintained accurately by my accountant. and all figures are genuine. Please guide me as to why should i go for audit. Can i disclosed my books the way i use to file earlier.

  32. Tax.Adv.BSKRAO says:

    Presumptive Taxation is a curse to Partnership Firms, because of wrong amendment carried out for not allowing Interest & Remuneration to partners from presumptive income.

  33. Sreedhar says:

    Iam working as contract lecturer in government polytechnic college.Can i come under 44ada sectin
    Can I show my savings before deduct my account.

  34. neha shrivastava says:

    Hello, I have an IT job and plus doing/getting free lancing from America. I am in 30% salary bracket, so How should I pay Taxes for my Freelance work? I need to pay taxes in India or America? DO I need to pay taxes at 30% for freelance work?

    I heard something about – “Presumptive Income Tax Scheme” can I use it? Thank you for the help.

  35. N.K. Tuli says:

    can an individual retained by an advertising agency and issued form 16A, file ITR 4 and claim under section 44ADA. Efiling tax site does not clarify. Main point whether can be covered ubder Technical consultancy or any other notified by CBDT under code 607

  36. Rammohan says:

    I am in LEGAL Profession. I do not maintain accounts. On what basis should I show my presumptive income? How do I work out my total receipts, to arrive at 50% as my Presumptive income?

  37. Rishi says:

    I am a doctor. Have gross income of 28 lakhs per annum. At what amount I will calculate tax. Should I keep records/receipts of my expenditures ??

  38. Narahari says:

    If i opt of presumptive taxation during the FY 2016-17 , is there any compulsion that i should follow the presumptive taxation scheme in the following years too?? Because from the next year on wards i will not be receiving any professional fees , but i will be receiving salary , so what should i do ??

  39. SP says:

    Article says certain sports related persons covered u/s 44ada. Sports coaches, persons providing sports related consultancy covered u/s 44ada? How to know which sports related persons are covered? 44ada is applicable from ay 2017-18,i.e fy 2016-17,right? in the beginning, its said applicable from 1.4.2017. you mean to say returns filed from 1.4.17 for ay 17-18, right?

  40. Rakesh Gupta says:

    In a case of doctor, receipts are Rs 10 lacs, against which the actual expenses Rs 1.5 lacs resulting net profit works out to Rs 8.5 lacs. Regular books of accounts are maintained.

    Please give your valuable opinion after considering the above facts:-

    1. Can return be filed under section 44ADA by applying net profit rate @ 50 percent on total receipts OR
    2. It will be better to file return on the basis of book results i.e. 8.5 lacs.

  41. P. K. Dutta says:

    I am getting my salary as professional fee. Employer has deducted TDS under 194(J). Whether I am eligible u/s 44ADA to file ITR-4

  42. Satish Kumar says:

    If the professional receipt are less than Rs. 25 Lacs than I want to know whether audit is required under section 44ab of income tax act. I want to know whether sec 44ada is applicable only to those firms who’s receipt are more than25 lacs but however less than Rs.50 lacs

  43. Sathya Kiran says:

    I am a computer professional but have not done well in business (working individually) this year and have earned about 6 lakhs total income. My expenditure has been about 4.5L related to earning this as I had to invest in consultants to get a job done but unfortunately did not get paid by end clients.
    Now my CA says that you have to indicate 50% profit or undergo an audit which will cost about 10,000 Rs.
    Basically I am already in a loss having earned hardly 1L.
    Why should I have to spend 10000 Rs to audit my accounts when all income and expenditure are via cheques and I have bills and receipts to support them and there are no cash transactions.
    Why is the government forcing us to undergo audits for a turnover of Rs 6L. Its not that I have made a turnover of Rs 25 Lakhs and above where I can afford audits etc.
    In addition to 6L turnover I have earned 5L in fd interests and bank interests and already banks have deducted tds for the same.

    6L turnover in nothing nowadays..Why should I not be allowed to file my tax returns in a normal way..Its very sad that the government is forcing entrepreneurs to an audit for a small sum of 6L of turnover.
    The Income tax department should go through my tax filing and if they think its necessary should request me for an audit report…When its obvious to them that the details reported are genuine and reasonably OK they should go ahead and settle my filing thus saving me Rs 10,000 CA charges
    Please advise how I can save this 10000 audit fee
    Thanks

  44. s sundararajan says:

    My Gross earnings for 2016-17 is 7.2 Lakhs and my TDS deduction was 72K.
    While submitting ITR form 4 in Income tax site, it gives the following error message and I am unable to submit return.

    “Details of receipt as mentioned in Form 26AS should not be less than twice of the amount of tax deducted”

  45. sumit says:

    I running a catering services my turnover annual approximate 4800000 i file itr 4s and we declare our taxable income 8 % and we take claim 80 c or not please confirm us

  46. Deepak Goyal says:

    If Gross receipt exceeds Rs 25,00,000, on the one hand He is liable to audit u/s 44AB, then how he can claim benefit of Sec 44ADA because sec 44ADA does not override sec 44AB.
    In this case, Despite Gross receipts is less than Rs 50 lakhs, even then He can not claim benefit of sec 44AB. I think there is conflict between sec 44AB and sec 44ADA

  47. Vittal says:

    Dear sir, i am professionally doctor i geting salary 7.5 lakh they will make TDS u/s 192 and i worked as a consoltent i got 5 lakh they deducted u/s194j my question is can i opt 44ADA or not ? Which form should submited ITR 1 or ITR 4 ? And what about maintaining books of account ( i opt more than 50% of gross receipt & exceding basic examption limit )

  48. P Lewis says:

    1. Person who performs as a violinist for various events. Can he file his returns u/s 44ADA
    2. Person who plays professional sports for a club which partcipates in the official league of India. Can he file returns u/s 44ADA.

  49. Subhajit Kr BalNiyogi says:

    I am an Engineering Professional and working as a consultant on contract basis.
    Now, as per norms, I have to fill Form-ITR-4. And now in the section 44ADA, can I directly claim 50% (or some more) as my net gains/earnings and only that portion is chargeable?
    Whether any proofs required for this 50% deduction.
    I have got Form 16A..

  50. S.K.Mangla says:

    An individual having Income form Insurance Commission can file his return of Income u/s 44ADA or 44AD. Please suggest.

  51. Suresh says:

    Hi, I am having gross income of 3 lakhs for FY 2016-17 and I have received 2.4 lakhs after deducting PF and TDS.
    Can I mention gross receipt 3 lakhs u/s 44ADA and 2.4 lakhs as Presumptive income under section 44ADA.

  52. GAURAV JAIN says:

    As per bare act it is applicable to all resident assesse which means applicable to LLP also (which i think you have wrongly mentioned).

    Can you clarify from where u came to know it is not applicable to LLP

    Gaurav Jain

  53. Sumit Anshani says:

    As per Author’s Note:
    “Businessmen covered u/s 44AD are permitted to pay the whole of advance tax by March 15. But no such concession is seen vis-à-vis a professional covered under 44ADA. That is to say, all the four installments may be paid”

    As per Section 211(b) of Income Tax Act:

    [an assessee who declares profits and gains in accordance with the provisions of sub-section (1) of section 44AD or sub-section (1) of section 44ADA, as the case may be], to the extent of the whole amount of such advance tax during each financial year on or before the 15th March

    All Four Installments are not applicable for Professsionals falling under 44ADA!!

  54. Varun says:

    Section 44ADA does not override Sec 44AA, then how do we say professionals opting for 44ADA need not maintain books of account as per sec 44AA.
    Is it because sec 44ADA(4) provides for maintenance of books for assessees with income lower than deemed 50% and exceeding minimum tax slab?
    I fail to see how 44ADA(4) overrides 44AA, and exempts professionals from maintaining books of account.

  55. Adithya YS says:

    is Partner getting remuneration from a professional firm is also eligible to take the benifit of Section 44ADA? If so, lets assume, remuneration from a professional firm is 10 lacs and interest on debit balance in capital is (-) 1 lac. Is the gross receipt in this case 9 lac? is this eligible to be taxed at 50%?

  56. khush says:

    technical consultancy includes what kind of technical consultant service???and just wanted to know whether a managing graduate who acts as a consultant in a company rather than an employee…whether this sec is applicable to such person or not????????

  57. Debasish Chattopadhyay says:

    I m not clear that income of Rs 50 Lakhs or more when less than 50% of the gross receipts!. So what is income differentiated from receipts?

  58. GOVIND says:

    The article mentioned that “Certain sports related persons” are also notified by the CBDT as professionals.
    Please provide the source of information of the same i.e. Circular/ Notification etc.
    Thank You

  59. CA Kasthuri Rangan G.P., FCA says:

    I believe CA’s taking classes for CA students may show their income from such activity under profession eligible u/s 44ADA. Please respond

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