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CA Prasanth Srinivas

CA Prasanth SrinivasExtract of Section 44ADA from Proposed Finance Bill 2016

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

After section 44AD of the Income-tax Act, the following section 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 is 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

o To bring parity between small businessmen (who enjoy presumptive taxation u/s 44AD) and small professionals

o To reduce compliance burden of small professionals

o 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

o Authorized representatives

o Film Artists

o Certain sports related persons

o Company Secretaries and

o 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 01.04.2016 is Rs. 1,00,000, the depreciation deemed as allowed will be Rs. 10,000 and accordingly WDV as on 31.03.2017 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:

o Quantum of actual expenditure (i.e. not advisable for a professional having small net profit ratio)

o Interest on borrowings

o Depreciation available

o Quality of accounting systems etc.

• 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.

• 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)

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Posted Under

Category : Income Tax (25317)
Type : Articles (14801)
Tags : Budget 2016 (435) Good Budget (16) Section 44AD (109)

77 responses to “New Section 44ADA – Presumptive Tax Scheme for Professionals”

  1. RAKESH KHATER says:

    is Partner getting remuneration from a professional firm is also eligible to take the benifit of Section 44ADA?

  2. N.RAJARETHINAM says:

    Whether L.I.C Agents are eligible under section 44ADA as profession

  3. N.RAJARETHINAM says:

    I am L.I.C. Agent.Shall I eligible under section 44ADA to file under profession.

  4. 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

  5. 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?

  6. 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 ??

    • ca ravi says:

      sir, you have turnover more then 25 lacs so if you dont show 50% or above profit you will have to get account audited

      CA RAVI
      caravivarshney.at.gmail.com

  7. P Domburu says:

    can i take deductions under chapter VIa u/s 44ADA

  8. 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 ??

    • ANKUSH GOYAL says:

      as per income tax act, you can opt out any time from presumptive income filling but once you opt out from there you can’t opt for this scheme for next 5 years.

  9. 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?

  10. 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.

    • CA Prince Bansal says:

      IT WILL BE BETTER IF YOU FILE YOUR RETURN INCOME U/S 44ADA AND DISCLOSE INCOME OF RS. 8.5 LAKH BECAUSE 50% RATE IS MINIMUM.

  11. brij says:

    can the return be filed under section 44 ADA for commission income received from Amway.

  12. Charu Goel says:

    My professional fees Rs. 5 lacs and expenses Rs. 1 lacs. Can I show taxable income Rs. 2.50 lakhs u/s section 44ADA.

  13. Sekharan M V says:

    conducting tuitions ..what sec.applies

  14. 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

  15. KESHAV says:

    CAN A MUSIC TEACHER FILE HIS RETURN UNDER 44ADA

  16. 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

    • Santosh Kumar says:

      there is no requirement of tax audit u/s 44AB for individual professionals. Sec. 44ADA is wef 01.04.17 & it covers to individuals also 7 not only firms for professional income upto 50 lacs

  17. 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

    • JAYESH says:

      Sathya sirji,
      you do not have to get your accounts audited – pre condition is your total income does not exceed basic exemption limit i.e. 2.50 lacs.

      if your ca / consultant does not file your return – you can contact me through my mail i.d. tlvithlani@gmail.com

  18. 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”

  19. 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

  20. 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

  21. 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 )

    • Santosh Kumar says:

      Sir, ITR 4 need to be file, you will get deduction u/s44ADA only for consultancy income & not on salary. Both heads are separate & you have claim accordingly.

      TDS can be claim as routine

  22. NIMESH parikh says:

    Can lic commission agent income cover u/S 44 ada. Please give response

  23. 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.

  24. 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..

    • CA H R SHENOY says:

      Under 44ADA no proof is required for expenses. No books of account need to be maintained.On the entire Gross receipt minimum of 50% should be declared as your taxable income.

      • JAYESH says:

        shenoy ji,

        sorry to say but i think there is a condition that my real net income is less than 50% (of turnover).

        what i mean to ask if
        i got 40 lakhs as a professional fees (serving in a trust hospital as a doctor) and i put 40 lakhs in fixed deposit as i have no professional exp. (trust provide everything) .
        can i allowed to offer 20 lacs only for taxation purpose.
        what if department ask me source of 40 lakhs fixed deposit ?

  25. S.K.Mangla says:

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

  26. S.K.Mangla says:

    an HUF having professional income below Rs 50Lac can file his return of Income u/s 44ADA Please suggest.

  27. G S BUDYAL says:

    Under 44ada , Can partner get deduction for salary and interest

    • ANKIT R RAMANI says:

      44 ADA IS ONLY APPLICABLE TO PROFFESSION NOT PARTNERSHIP FIRM

      • ANKIT R RAMANI says:

        HOW EVER U/S 44 AD
        interest , salary , remuneration etc paid to partners by the partnership firm will not be allowed as deduction if income declared u/s 44AD wef F.Y. 2016-17 as the provision in this respect prvided under Section 44AD(2) has been deleted by the Finance Act 2016.

  28. Ankit upadyay says:

    Confectioner in come is cover in 44 ADA ?

  29. ANKIT RAMANI says:

    LIC AGENT COVER UNDER 44ADA????

  30. 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.

    • Hemali Gandhi says:

      Hi Suresh
      If Rs 3 Lakhs is your gross receipts than as per section 44ADA you need to offer only 50% that is Rs 1.5 Lakhs to tax as your professional income

  31. Kamlesh says:

    Which ITR form should be used for filling ITR U/s 44ADA

  32. 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

  33. 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!!

  34. 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.

  35. Raja009 says:

    What kind of doctors are eligible in Section 44ADA?
    Naturopathy and physiotherapist can avail this presumptive tax ?

    • Hemali Gandhi says:

      44ADA speaks of various professions of which medical is one of the professions

      So it is applicable to all those in medical field

  36. Abdul Haseeb says:

    Commission agent who sale Vegetable and Fruit at Commission, can he adopt this benefit of assessing u/s 44 ADA

  37. Bhuvanesh says:

    Can management consultant avail this scheme of U/S 44ADA( 50% income for computing income tax)?

  38. akshit jain says:

    my question is if the owner of restaurant has to pay tax @ 50% or not

  39. P.VEERABHADRESWARA RAO says:

    Sir,
    If the assessee is Real Estate agent, can he adopt this benefit of assessing u/s 44 ADA

  40. hemant says:

    The way u have projected this section is totally awesome its so easy and simple for understanding thank you so much for this

  41. AKA says:

    Where does the language of this section say that it is not applicable on LLP?

  42. 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%?

  43. 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????????

  44. 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?

  45. A SHANKARAN says:

    Which ITR FORM I SHOULD USED FOR FILING REUTRN u/s 44ADA.

    Whether I should show 100% Income or 50% income in the column of total income

  46. Sumit says:

    A doctor running hospital, whether this section would applicable on him ???

  47. 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

  48. 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

  49. VIJAY SALGAONKAR says:

    HI B.COM GRADUATE IS ELIGIABLE TO FILE HIS RETURN UNDER THIS SCHEME.

  50. Vka says:

    does that means a CA has to get his accounts audited by another ca?

  51. rohit jain says:

    CAN REMUNERATION GIVEN TO PARTNERS BE CLAIM UNDER SECTION 44ADA

  52. paul says:

    is it possible to deduct 80 c 80 d ETC in case a professional adopts 44ada

  53. CA Prasanth Srinivas Ayyar says:

    I was asked what was the recommendation of justice Easwar Committee

    Please click the link – Page 20 – Para 5

    https://taxguru.in/income-tax/summary-draft-report-easwar-committee-simplify-provisions-incometax-act-1961.html

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