Section 44ADA – Presumptive Taxation Scheme for Professionals

The presumptive taxation scheme under Section 44ADA is a simplified method of calculating taxable income for professionals. This scheme is designed to reduce compliance burdens by eliminating the need for maintaining detailed books of accounts and providing a straightforward way to compute income.

Eligibility for Section 44ADA

Professionals can opt for the presumptive taxation scheme under Section 44ADA if they meet the following conditions:

1. Type of Assessee:
   • The taxpayer must be:
     • A resident individual, or
     • A resident partnership firm (excluding LLPs).
2. Gross Receipts:
   • The gross receipts of the profession should not exceed ₹50 lakh in a financial year.
   • From the assessment year 2024–25, if the cash receipts of the profession do not exceed 5% of the total receipts, the threshold limit for gross receipts is increased to ₹75 lakh.
3. Specified Professions: The scheme applies to the following professions specified under Section 44AA(1):
   • Legal
   • Medical
   • Engineering or Architectural
   • Accountancy
   • Technical Consultancy
   • Interior Decoration
   • Any other profession as notified by the Central Board of Direct Taxes (CBDT).

Computation of Taxable Income

For professionals adopting the presumptive taxation scheme under Section 44ADA:

1. Presumptive Income Rate:
   • Income is presumed to be 50% of the total gross receipts of the profession.
   • The taxpayer can declare income higher than 50%, if applicable.
2. Expenses:
   • All expenses related to the profession are deemed to be included in the presumptive income.
   • No further claim for deduction of business-related expenses is allowed.
   • However, the taxpayer can still claim deductions under Chapter VI-A (e.g., Sections 80C, 80D).
3. Flexibility for Lower Income Declaration:
   • If the professional declares income lower than 50% of gross receipts, the following conditions apply:
     • They must maintain books of account as per Section 44AA.
     • If their income exceeds the basic exemption limit, they must get their accounts audited under Section 44AB.

Key Benefits of Section 44ADA

1. Simplified Taxation Process:
   • Professionals can calculate taxable income without maintaining detailed records of income and expenses.
2. No Need for Books of Account:
   • Professionals who declare 50% or more of their gross receipts as income are not required to maintain books of account under Section 44AA.
3. Audit Exemption:
   • If the income is declared as per Section 44ADA (at or above 50%), no tax audit is required under Section 44AB.
4. Reduction in Compliance:
   • Saves time and effort by simplifying income computation and compliance requirements.

Advance Tax Obligations

Professionals opting for Section 44ADA must fulfill their advance tax liability as follows:

1. Payment Deadline:
   • The entire advance tax must be paid on or before 15th March of the financial year.
   • Any payment made up to 31st March will still qualify as advance tax.
2. Interest on Late Payment:
   • Failure to pay advance tax by the due date may result in interest liability under:
     • Section 234B (for default in payment of advance tax).
     • Section 234C (for deferment of advance tax installments).

Important Points to Note

1. Deemed Expense Deductions:
   • By opting for Section 44ADA, professionals are deemed to have claimed all eligible deductions related to their profession. Therefore, no additional deductions for professional expenses are allowed.
2. Deductions Under Chapter VI-A:
   • Even under the presumptive taxation scheme, deductions under Chapter VI-A (such as Section 80C for investments in PPF, LIC, etc., or Section 80D for medical insurance) are still available.
3. Higher Declaration Option:
   • Professionals are required to declare income higher than 50% of gross receipts if their actual income exceeds this threshold.

Special Provisions for Lower Income Declaration

If a professional wishes to declare income lower than 50% of their gross receipts:

1. Maintenance of Books of Account:
   • They must maintain books of account as per the provisions of Section 44AA.
2. Audit Requirement:
   • If their total income exceeds the basic exemption limit, they are required to get their accounts audited as per Section 44AB.

Illustrative Example

Let’s consider an example to understand how Section 44ADA works:

Case 1:

• A resident lawyer has gross receipts of ₹40 lakh in a financial year.
• Under Section 44ADA, the taxable income is presumed to be 50% of ₹40 lakh, i.e., ₹20 lakh.
• No further expenses can be claimed as deductions. However, the lawyer can claim Chapter VI-A deductions (e.g., Section 80C).

Case 2:

• A chartered accountant declares gross receipts of ₹60 lakh, out of which only ₹2 lakh are in cash (cash receipts are below 5%).
• From the assessment year 2024–25, the higher threshold of ₹75 lakh applies because cash receipts do not exceed 5% of the total.
• Taxable income would be 50% of ₹60 lakh, i.e., ₹30 lakh.

Conclusion

The presumptive taxation scheme under Section 44ADA provides a straightforward and beneficial option for professionals to compute and pay taxes without the hassle of maintaining detailed records or undergoing tax audits. This scheme is especially advantageous for small-scale professionals with gross receipts up to ₹50 lakh (or ₹75 lakh with low cash transactions). By ensuring compliance with advance tax requirements and other provisions, professionals can leverage this scheme to simplify their tax filing process while staying within the legal framework.

Disclaimer: The information provided in this blog is for general informational purposes only and does not constitute legal, financial, or professional advice. While every effort has been made to ensure the accuracy and completeness of the content, we do not guarantee that it is up-to-date or applicable to your specific circumstances. Readers are advised to consult with a qualified professional or legal advisor for personalized advice regarding their particular situation. The use of this blog and reliance on any information contained herein is solely at your own risk. We disclaim any liability for errors, omissions, or any losses incurred as a result of the use of this information. By continuing to access or use this blog, you agree to this disclaimer and accept that we are not responsible for any decisions or actions taken based on the content.