Presumptive Taxation: Section 44ADA For Partnership Firm

To reduce the burden of compliance for small taxpayers, The Government provides for a scheme called Presumptive Taxation Scheme. Under this scheme, the taxpayer is not required to maintain any books of accounts, and their profit is presumed to be a certain percentage of sales.

Presumptive taxation mainly covers the 3 sections (Section 44AD, ADA, and AE) of the Income Tax Act. Hereunder this post, we will discuss Section 44ADA For Partnership Firm.

Section 44ADA For Partnership Firm

W.E.F. FY 2016-17, a new Section 44ADA was introduced by the income tax law in order to ease the tax burden on professional taxpayers mentioned in section 44AA.

Applicability of section 44ADA For Partnership Firm

Section 44ADA only applies in the case of Individuals, HUFs, and Partnership Firm provided they are Residents in India. This section does not apply in the case of Limited Liability Partnership Firm as they have been specifically excluded from this section.

Eligible Business:- The provisions laid out in section 44ADA applicable to the specified professional such as legal, medical architect, accountancy, interior decorator, or any other professional as given in section 44AA.

Turnover:- The person whose gross turnover from the profession is below Rs. 50 lakhs can opt for the provision of section 44ADA.

Who are the specified professional as per section 44AA

Following professionals are specified under section 44AA-

  • Interior decorates
  • Technical consulting
  • Engineering
  • Accounting
  • Legal
  • Medical
  • Architecture
  • Other professionals, as mentioned below-

a. Movie artists include a producer, editor, actor, director, music director, art director, dance director, cameraman, singer, lyricist, story writer, screenplay or dialogue writer, and costume designer.

b. Authorized representative means a person who represents another person for a fee before a tribunal or any authority constituted under any law. It does not include an employee of the person so represented or a person who is carrying on the profession of accountancy.

c. Any other notified professionals.

Non-Applicability of section 44ADA

A partner of a professional firm gets interest and salary from the firm under section 40b. Such a partner can not opt for the presumptive taxation scheme under section 44ADA concerning such salary and interest.

Feature of section 44ADA of Income Tax Act

  • Under section 44ADA, The presumed income of the assessee is deemed to be 50% of the gross turnover for the financial year, however, the assessee can claim a higher profit.
  • However an assessee can claim profit lower than 50% but in such case, he has to maintain books of accounts as mentioned u/s 44AA of the Act and get them audited as per section 44AB of the Income Tax Act.
  • Assessee opted for presumptive taxation under section 44ADA will not be eligible to claim any type of deduction/expenses from section 30 to 38 (including unabsorbed depreciation.)
  • In the case of a partnership firm, no interest and salary to partners subject to section 40b are deductible from such deemed profit.
  • Further, sections 40, 40A, and 43B are also not applicable if income is deemed under this section.
  • If there is any advance tax liability then the eligible assessee is required to pay 100% (in one installment) of its tax liability by 15th March of the financial year. No other provision of advance tax applicable on such assessee.
  • The assessee opts for section 44ADA, is not required to maintained books of accounts under section 44AA.
  • An assessee declaring his income as per presumptive taxation under section 44ADA can also claim deduction under chapter VI-A.

Also Read- Remuneration to partners as per section 40b of the Income-tax Act, 1961

WDV of depreciable assets

If the assessee opts section 44ADA then the WDV of any assets of eligible business shall be deemed to have been calculated as if the eligible assessee had claimed and had been actually allowed the deduction in respect of depreciation for each of relevant years.

Frequently Asked Questions- FAQs

  1. Can a partnership firms opt for 44ADA?

    Section 44ADA For Partnership Firm- Section 44ADA only applies in the case of Individuals, HUFs, and Partnership Firm provided they are Residents in India. This section does not apply in the case of Limited Liability Partnership Firm as they have been specifically excluded from this section. Under this scheme, the assessee would be deemed to have been allowed the deductions under sections 30 to 38.

  2. Is presumptive taxation applicable to partnership firms?

    Presumptive taxation mainly covers the 3 sections (Section 44AD, ADA, and AE) of the Income Tax Act. All these sections only apply in the case of Individuals, HUFs, and Partnership Firm provided they are Residents in India and do not apply in the case of Limited Liability Partnership Firm as they have been specifically excluded from this section.

  3. Who is eligible for section 44ADA?

    Section 44ADA only applies in the case of Individuals, HUFs, and Partnership Firm provided they are Residents in India. This section does not apply in the case of Limited Liability Partnership Firm as they have been specifically excluded from this section.
    Eligible Business:- The provisions laid out in section 44ADA applicable to the specified professional such as legal, medical architect, accountancy, interior decorator, or any other professional as given in section 44AA.
    Turnover:- The person whose gross turnover from the profession is below Rs. 50 lakhs can opt for the provision of section 44ADA.

  4. Is Section 44ADA applicable to companies?

    Under section 44ADA the Following assessee is eligible to opt this section provisions.
    Individual Assessee
    Hindu Undivided Family (HUF)
    Partnership Firms- (LLP do not fall under the purview of this section)

    Provided that all the above assessee should be Resident in India. Accordingly, section 44ADA does not apply to the company assessee.

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Disclaimer: The information contained in the above article are solely for informational purpose after exercising due care. However, it does not constitute professional advice or a formal recommendation. The author does not own any responsibility for any loss or damage caused to any person, directly or indirectly, for any action taken based on the above article.

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Compiled by- CA Chirag Agarwal (Practicing Chartered Accountants)

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