44ADA Presumptive Taxation For Professionals

Income tax act, 1961 introduced the Section 44ADA under the scheme of presumptive taxation from the FY 2016-17. The act already contains two sections, i.e., 44AD and 44AE, under the presumptive taxation scheme. 

The presumptive schemes provide a simple method of computing tax. Similarly, section 44ADA contains the specific provisions for computing profit and gains for small professionals and consequently tax thereupon. 

What is section 44ADA?

Section 44ADA is a tax provision in which an eligible person opting for presumptive taxation can declare income at a prescribed rate, i.e., 50%. It means 50% of the gross receipts are considered “deemed income.” Here, the assessee has to pay tax on such deemed income only. 

However, only the specified professionals whose total gross receipts are less than INR 50 lakhs can opt for this scheme.

Further, they get exemption from maintaining books of account and their audit thereof. 

• Objectives
• Simplified taxation system 
• Ease of doing business for professionals 
• Reduce the compliances burden for small taxpayers

Persons eligible under section 44ADA

The following persons are eligible to opt for section 44ADA:

• Individual professionals 
• Hindu undivided families (HUF)
• Partnership firms excluding limited liability partnership (LLP)
• Professionals whose annual gross receipt is less than Rs. 50 lakhs 

Professions covered under section 44ADA

The professions covered under section 44AA (1) of the Income-tax Act, 1961 are only eligible to avail the benefit of section 44ADA. It includes:

• Engineering
• Legal
• Medical 
• Accountant
• Architectural profession
• Technical consultant
• Interior business
• Other notified professionals, such as movie artists, actors, music directors, authorized representatives, certain sports-related persons, company secretaries, etc. 

Computation of taxable income under section 44ADA

Deemed income: If you opt for 44AD, then 50% of the total gross receipts during the financial year shall be considered as the income of the professional. 

Deduction of expenses: It shall be deemed that all the expenses have claimed and already deducted from the 50% income. Hence, assessee can’t claim any further expenses.

WDV of assets:  While computing the income as per section 44ADA, there is no separate deduction of depreciation. However, the assessee will calculate the written down value (WDV) of the asset after considering the actual deduction of depreciation only. 

Payment of advance tax: The assessee has to pay the whole amount of advance tax on or before the 15th March of the previous year in one installment only. Failing to pay advance tax attracts interest under section 234C. 

Benefits of section 44ADA

The small taxpayers enjoy various other benefits under this scheme such as:

• Reduction in tax liability 
• Hassle-free return filing process with straightforward ITR-4 Form.
• No need of maintaining books of accounts under section 44AA
• No need for an audit of accounts under section 44AB
• Once the professionals opted for this scheme, they can opt-in or opt-out anytime. 

Opting out from section 44ADA

However, if a person wants to declare income at a lower rate, i.e., less than 50%, he can do so. But if his total income exceeds the maximum amount not chargeable to tax, then he has to fulfil the following conditions:

• Maintain books of accounts under section 44AA
• Gets his accounts audited under section 44AB

Conclusion

The assessee has the choice to opt for section 44ADA or the normal provisions. After considering all the aspects of the presumptive scheme and various other general provisions, you can find ways to reduce your tax. A taxpayer must estimate all his receipts and expenses and do the tax planning before deciding whether opt for the scheme or not.