Presumptive Tax for Professionals (SECTION 44ADA) 

Section 44ADA is a special provision for calculating the profits and gains of small professionals in certain circumstances. This section was introduced to extend the scheme of simplified presumptive taxation to specified professionals. This scheme simplifies tax calculations and compliance for eligible professionals, ensuring ease of doing business. Under the presumptive scheme of taxation, profits are presumed at 50% of the gross receipts.

Eligibility for Section 44ADA

As per section 44ADA (1), an individual or partnership firm (excluding LLP) who is engaged in a profession referred to in sub-section (1) of section 44AA is eligible for a presumptive taxation scheme.

Who can opt for presumptive taxation scheme of Section 44ADA?

The presumptive taxation scheme of Section 44ADA can be adopted by a resident in India carrying on specified profession whose gross receipts do not exceed ₹ 50 Lakh in a FY. Under this scheme, Following professions are the specified profession.

• Legal
• Medical
• Engineering or Architectural
• Accountancy
• Technical Consultancy
• Interior Decoration
• Any other Profession as notified by CBDT

Note : The threshold under Section 44ADA was raised from Rs 50 lakhs to Rs 75 lakhs in Budget 2023, provided that cash receipts remain below 5% of total revenue.

Benefits for Adopting Section 44ADA

• No need of maintaining books required under Section 44AA
• No requirement of having accounts audited under Section 44AB

Implications of choosing Section 44ADA

All deductions for business expenses are deemed to have been allowed. Once profits are taxed at 50% of the gross receipts, the balance 50% is deemed to be allowed towards all the business expenses of the assessee. 

Note: Business expenses may include consumables, cost of services taken from another professional, daily expenses, books, stationery, telephone charges, depreciation on assets (laptop, vehicle, printer etc.) and any other expense incurred to carry on the profession.

The written down value (WDV) of assets for tax purpose shall be calculated as of the depreciation has been allowed each year. This WDV would be the value of the asset for tax purpose in a case where the asset is sold later by the assessee.

Consequences of Opting Presumptive Taxation Scheme u/s 44ADA

• Deduction under section 30 to 38 shall be deemed to have been allowed
• Written down value of any asset for the succeeding year shall be computed as if the assessee has claimed deduction.
• Assessee to maintain accounts and get them audited if he claims profit to be less than 50% of the gross receipts.

Note: A firm is not entitled to deduction on account of interest and salary paid to the partners if he is covered under section 44ADA and Section 44AD. However in section 44AE the amount shall be deductible.

ITR form need to be file for return filing U/s 44ADA 

Taxpayers who choose presumptive taxation under Section 44ADA should report such income as PGBP Income and file Form ITR-4 . If the taxpayer has capital gains income in addition to presumptive income, he or she should submit Form ITR-3.

Advance Tax in case return filed U/s 44ADA

Anyone opting for the presumptive taxation scheme u/s 44ADA is liable to pay 100% of Advance Tax on or before 15th March of the previous year. In case fail to pay the Advance Tax by 15th March of previous year, then liable to pay interest as per Section 234B and Section 234C. Any amount paid by way of Advance Tax on or before 31st March will also be treated as Advance Tax paid during the FY ending on that day.

Example 1: Mr. Amit salary income is Rs. 10 lakh per annum and his Professional income from technical consultancy (specified profession) is Rs. 6 lakh. He can opt for the presumptive taxation scheme under section 44ADA.

In this case, only 50% of the Professional earnings will be added to total income and annual income will stand at Rs. 13 lakh (10 Lakh + 3 Lakh). Mr. Amit must file ITR-4.

Example 2: Mr Ankit is a freelance interior decorator. His total receipts for the financial year 2019-20 are Rs 20 lakh. His annual expenses are Rs 7 lakh towards rent, conveyance, telephone, travelling etc. Here, we can compare his taxable income under normal provisions and the presumptive scheme as below:

In the above case, the net profit under the presumptive scheme is lower than the normal provisions. Hence, it is beneficial for Mr Ankit to offer his income under the presumptive scheme of taxation under section 44ADA.