Presumptive Taxation – Section 44ADA

Introduction

Section 44ADA of the Income Tax Act is a presumptive taxation scheme designed specifically for resident individual professionals to simplify their tax compliance . Under section 44ADA, individuals can declare their income at a fixed percentage say 50% of their total gross receipts. This section is beneficial to all professionals such as doctor, chartered accountant, lawyer etc.

Section 44ADA applicable to:

Section 44ADA is applicable to :

• A Resident Individual
• A Partnership firm other than a Limited Liability Partnership Firm.

Eligible Professions covered under section 44ADA

• Legal ;
• Medical ;
• Engineering ;
• Architectural profession ;
• Accountancy profession ;
• Technical consultancy ;
• Interior decoration ; or
• Any other profession notified by the Board.

Section 44AD Not Applicable to :

• A person carrying on any business
• A person who is a non-resident

Gross Receipts limit :

The amount or aggregate of the amounts received during the previous year, in cash, in a previous year does not exceed five percent (5%) of the total gross receipts then the gross receipts applicable under this section is rupees seventy-five lakh (₹ 75 lakhs).

Note : Prior to 01-04-2024 the gross receipts limit under this section was rupees fifty lakh rupees (₹ 50 lakhs).

How to calculate Income under section 44ADA?

Income under section 44ADA is calculated as fifty percent (50%) of the total gross receipts received from the professional income.

Even a higher percentage of gross receipts can be declared as income.

Benefits of Section 44ADA

• No need to maintain books of accounts
• Need not get the books of accounts audited from a Chartered Accountant.
• Simple return filing procedure.

Advance Tax Compliance

Taxpayers opting to file return under section 44ADA are required to pay the advance tax in the last instalment (i.e 15th March instalment) if the liability to pay advance tax arises.

Applicable ITR Form

• Taxpayers having only Income from salary, one house property, Income from Profession (i.e income under section 44ADA), Income from Other sources and Agricultural Income up to ₹ 5,000/- can file ITR-4 (Sugam).
• In other cases ITR-3 is required to be filed.

Important points to be considered

• Deductions under section 30 to 38 of the Income Tax Act such as Rent, Repairs & Maintenance, Investment Allowance, Scientific Research etc. will not be allowed.
• Depreciation under section 32 of the Act shall be deemed to have been calculated.
• Lower Income declaration – If the taxpayer wants to declare lower income than the prescribed limits and his/her total income exceeds the basic exemption limit they must
  • Maintain books of accounts or other documents as prescribed in Section 44AA; and
  • Get the books of accounts audited and furnish an audit report as per Section 44AB.

Examples

Example 1:

Mr.X is a resident Doctor , earns ₹ 60 lakhs from her private practice (all through bank transfers). What is her professional income in this case?

In this case, Mr.X is a resident Doctor, and also his gross receipts are less than ₹ 75 lakhs therefore he is eligible to opt Section 44ADA.

Income from Profession = ₹ 60 lakhs x 50% = ₹ 30 lakhs.

In this case ₹ 30 lakhs is the taxable income.

Example 2:

Mr.Y is an Engineer, who earns ₹ 40 lakhs by way of electronic mode and ₹ 8 lakhs by way of cash. Is he eligible to opt for section 44ADA?

In this case,

• Mr.Y is an Engineer, which is covered under section 44ADA hence he is eligible.
• His total gross receipts are below the threshold limit ₹ 75 lakhs (i.e ₹ 48 lakhs).

Therefore, Mr.Y is eligible to opt for section 44ADA.

Example 3:

Mr.A is doing retail business of selling stationeries. His receipts from sale of stationery items are ₹ 60 lakhs. Is he eligible to opt for section 44ADA?

In this case, Mr.A is not eligible to opt for section 44ADA, as the business of stationery is not a specified profession under this section.

🔗 Related Posts:

Presumptive Taxation – Section 44AD

Major Changes in ITR-1 & ITR-4