Presumptive Taxation for Professionals

Section 44ADA of Income Tax Act, 1961.
Section 44ADA is applicable to Individual, Hindu Undivided Family and partnership firm but it is not applicable to Limited Liability Partnership and company. Assesses is a resident and engaged in profession mentioned in Section 44AA (1). However, Professional receipts does not exceed Rs 50,00,000 in previous year.
The specified professions u/s 44AA (1) are Legal, Medical, Engineering, Architecture, Accountancy, Technical consultancy, Interior Decoration or any other notified professions such as Authorised Representative, Film Artist and Company Secretary.

If Section 44ADA is applicable then:

  1. Business income u/s 44ADA is 50% of total gross receipts.
  2. All deduction shall be deemed to have been already allowed. All adjustments u/s 28 to 44 are assumed to be done.
  3. Provisions of maintenance of books of account or compulsory audit are not applicable if assesses declares his income in accordance with Section 44ADA.

Other Provisions of Section 44ADA are as follows:

  1. This scheme is Optional. 
  2. Written down value for the succeeding year will be computed as if the assesses has claimed depreciation for each of the relevant year. 
  3. If Assessee declares lower profit and his income exceeds the basic exemption limit then he is required to maintain books of accounts and get them audited u/s 44AB.
  4. With the AY 18-19, assesses covered under section 44ADA shall be required to pay advance tax on or before 15th March every year. And the entire Advance tax should be paid in One Instalment i.e. on 15th March every year.

Proposed Changes in Budget 2023:

In Budget 2023 Finance Minister Nirmala Sitharaman has increased the threshold limit for the assesses who are covered under section 44ADA. The Threshold limit has been increased to Rs 75,00,000 from Rs 50,00,000 earlier. The new threshold limit will be applicable to those assesses whose amount or the aggregate amounts received during the previous year through bank or such other electronic mode is 95% of the Total Turnover or Gross receipts. The scheme will be applicable from 1st April, 2023 and accordingly applicable to the assessment year 2024-2025 and subsequent assessment years.

Frequently Asked Questions will help to understand the provisions of Presumptive Taxation for Professionals:

Q.1 Is Section 44ADA is compulsory scheme?

Ans: No, Section 44ADA is not a compulsory scheme it is an Optional scheme for the assesses.

Q.2 Which Assessee are covered under Section 44ADA?

Ans: Assesses such as an Individual, Hindu Undivided Family and Partnership firm are covered under Section 44ADA.

Q.3 What are the specified professions under section 44AA (1)?

Ans: The specified Professions under section 44AA (1) are Legal, Medical, Engineering, Architecture, Accountancy, Technical consultancy, Interior Decoration or any other notified professions such as authorised representative Film Artist and Company secretary.

Q.4 What is the business income u/s 44ADA? 

Ans: The business income u/s 44ADA is 50% of the total gross receipts. 

Q.5 What are the threshold limit for the professionals opting for Section 44ADA?

Ans: The threshold limit for the professionals opting for Section 44ADA is Rs 50,00,000 in previous year.

Q.6 Whether any deduction is allowed u/s 44ADA?

Ans: No, all deduction shall be deemed to have been already allowed. All adjustments u/s 28 to 44 are assumed to be done. 

Q.7 Is it compulsory to maintain books of accounts and doing audit u/s 44ADA? 

Ans: Provisions of maintenance of books of account or compulsory audit are not applicable if assesses declares his income in accordance with Section 44ADA. 

Q.8 Can Assesses declare lower profit? 

Ans: Yes, assesses can declare lower profit. But if his income exceeds the basic exemption limit then he is required to maintain books of accounts and get them audited u/s 44AB 

Q.9 What is the due date to pay advance tax u/s 44ADA? 

Ans: The assesses u/s Section 44ADA are required to pay the advance tax on or before 15th March every year. And the entire advance tax should be paid in one single instalment i.e. on 15th March every year. 

Q.10 What is the proposed change in budget 2023?

Ans: The assesses who are covered under section 44ADA the threshold limit has been increased to Rs 75,00,000 from Rs 50,00,000 earlier. The new threshold limit will be applicable to those assesses whose amount or the aggregate amounts received during the previous year through bank or such other electronic mode is 95% of the Total Turnover or Gross receipts.

Q.11 From when the scheme is applicable? 

Ans: The scheme will be applicable from 1st April, 2023 and accordingly applicable to the assessment year 2024-2025 and subsequent assessment years.