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Section 44ADA Presumptive Tax Scheme for Professionals  August 31, 2017

Section 44ADA Presumptive Tax Scheme for Professionals


Meaning of presumptive taxation scheme

To give relief to small professionals from lot of hassle of maintenance of BOOKS of ACCOUNT and from getting the account audit, Income tax introduced the presumptive taxation scheme us 44AD for SMALL professionals.

Various presumptive taxation schemes under Income Tax Act

There are three types of taxation schemes in Income Tax Act:

1) Section 44AD – Presumptive taxation scheme for BUSINESS.

For detailed provision please refer earlier article “Section 44AD PROFIT AND GAIN OF BUSINESS ON PRESUMPTIVE BASIS“.

2) Section 44ADA – The presumptive taxation scheme for Professionals

3) Section 44AE – The presumptive taxation scheme

For detailed provision please refer earlier article “Section 44ADE Presumptive Tax Scheme for Small Business of Goods Carriage

Why this section is proposed

This section is proposed in line with the recommendation of Justice Easwar Committee to achive following objective:

  • Simplification of taxation for professionals
  • Bring parity between SMALL BUSINESSMAN (who enjoy section 44AD) and SMALL PROFESSIONALS
  • Reduce compliance burden of small professionals

Who is the eligible assessee

The presumptive taxation scheme of section 44AD can be adopted by following persons:

1) Resident Individual
2) Resident Hindu Undivided Family
3) Resident Partnership Firm (not Limited Liability Partnership Firm)

In other words, the scheme cannot be adopted by a non-resident.

Eligible Profession u/s 44ADA

Professionals referred to in section 44AA (1) of the Income Tax Act whose gross receipts in total from profession does not exceed Rs. 50 Lakhs in the relevant financial year.

1) Legal
2) Medical
3) Engineering or architectural
4) Accountancy
5) Technical consultancy
6) Interior decoration
7) Any other profession as notified by CBDT

  • Authorized representatives
  • Film Artists
  • Certain sports related persons
  • Company Secretaries and
  • Information technology

Payment of Advance Tax

A person opting for the presumptive taxation scheme of section 44ADA is also liable to pay advance tax.

Scheme of Computation of Income:

The rate of computation of income on an estimated basis is 50% of turnover or gross receipts of the eligible business for the previous year.

In case of a person adopting the provisions of section 44ADA, income will be computed on presumptive basis, i.e. @ 50% of the total gross receipts of the profession.
However such person can declare income higher than 50%.

Provisions Relating to Maintenance of Books of Account and Audit Requirement:

An assessee adopting these provisions is not required to maintain the regular books of account and he is also exempt from getting the books of account audited.

  • The provision of section 44AA relating to MAINTENANCE OF BOOKS OF ACCOUNT will not apply.
  • Assessee need not get the accounts audited u/s 44AB

Provisions Relating to Various Allowances / Dis-allowances:

Income computed as per section 44ADA will be net income for the business covered under this scheme.
All deductions from sections 30 to 38 including depreciation and un-absorbed depreciation / allowances shall be deemed as allowed year to year basis.
No dis-allowance can be made under sections 40, 40A and 43B.

Manner of Computation of WDV of Depreciable assets:

The WDV of any asset used in the business covered under section 44ADA shall be calculated as if depreciation as per section 32 is claimed and allowed.

Declaration of Higher Income:

Declaring income above the prescribed rate of 50%, the scheme permits the assessee to declare at his option higher income.

Declaration of Lower Income:

If the assessee wants to declares lower income then prescribed rate 50% and his actual income exceeds the maximum amount which is not chargeable to tax, then the relief from maintenance of books of account is not available and he is required to maintain the books of account as per section 44AA and further, he has to get such books of account audited as per section 44AB.