Section 44ADA of Income Tax Act- Presumptive Scheme for professionals

Presumptive Taxation Scheme

Before reading about section 44ADA of Income tax Act, 1961 it is necessary to understand the presumptive taxation scheme of the Act.

Presumptive Taxation- 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 following 3 sections of the Income Tax Act.

1) Section 44AD of Income Tax Act– Income presumed to be 8%/6% of the turnover.

2) Section 44ADA of Income Tax Act- Presumptive taxation @ 50% for Professionals.

3) Section 44AE of Income Tax Act- Presumptive taxation for transporters.

The following article explains in detail the provision of presumptive taxation for professionals under section 44ADA of The Income Tax Act, 1961.

Also Read- Section 44AD of the Income Tax Act, 1961

Section 44ADA of Income Tax Act

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 of Income Tax

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.

Assessee:- Under section 44ADA Following assessee are eligible to opt this section provisions.

• Individual Assessee
• Hindu Undivided Family (HUF)
• Partnership Firms- (Limited Liability Partnership (LLP) do not fall under the purview of this section)

Provided that all the above assessee should be Resident in India.

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.

Must Read – Complete Guide for Section 44AA of Income Tax, 1961.

Non-Applicability of section 44ADA of Income Tax Act

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 with respect to such salary and interest.

Also Read- Section 194P- No ITR Filing for Senior Citizen aged above 75 years

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 u/s 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.

Also Read:- Depreciation as per Income Tax Act- Complete list of Depreciation rate

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 of Income tax Act can also claim deduction under chapter VI-A.

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.

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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 on the basis of the above article.

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Compiled by- CA Chirag Agarwal (Practicing Chartered Accountants)