FAQs on Section 44ADA under Presumptive Taxation for Professionals

To provide the relief to the small taxpayers, the government has issued the presumptive scheme. Because the maintaining the books of accounts is very tedious work for the small taxpayers. It consumes extra money to be efficient. So, section 44ADA of the Income Tax Act provides the Presumptive taxation scheme for the Professionals. Let us know about the Section 44ADA for presumptive Taxation through the FAQs on Section 44ADA. Following are the FAQs on Section 44ADA under Presumptive Taxation:

1. For whom the presumptive taxation scheme of section 44ADA is designed?

The presumptive taxation scheme of section 44ADA is designed to give relief to small taxpayers engaged in the specified profession.

2. Eligible persons who can take advantage of the presumptive taxation scheme of section 44ADA

A person resident in India engaged in following professions can take advantage of the presumptive taxation scheme of section 44ADA:-

1. Legal

2. Medical

3. Engineering or architectural

4. Accountancy

5. Technical consultancy

6. Interior decoration

7. Any other profession as notified by CBDT

Further The Gross receipt during the previous year should be upto Rs. 50 Lakhs.

3. The manner of computation of taxable income in case of a person adopting the presumptive taxation scheme of section 44ADA

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

In other words, in the case of a person adopting the provisions of section 44ADA, income will not be computed in the normal manner but will be computed @50% of the gross receipts.

4. The presumptive income computed @ 50% is the final income and no further expenses will be allowed

A person who adopts the presumptive taxation scheme is deemed to have claimed all deduction of expenses. Any further claim of deduction is not allowed after declaring profit @ 50%.

While computing income as per the provisions of section 44ADA, separate deduction on account of depreciation is not available. However, the written down value of any asset used in such business shall be calculated as if depreciation as per section 32 is claimed and has been actually allowed.

5. Payment of advance tax in respect of income from professions covered under section 44ADA

Any person opting for the presumptive taxation scheme under section 44ADA is liable to pay the whole amount of advance tax on or before 15th March of the previous year. If he fails to pay the advance tax by 15th March of the previous year, he shall be liable to pay interest as per section 234C.

6. Maintenance of books of account if a person opts for presumptive taxation scheme of section 44ADA

In case of a person engaged in a specified profession as referred in section 44AA(1) and opts for presumptive taxation scheme of section 44ADA, the provision of section 44AA relating to maintenance of books of account will not apply. In other words, if a person opts for the provisions of section 44ADA and declares income @50% of the gross receipts, then he is not required to maintain the books of account in respect of specified profession.

7. Provisions to be applied if a person does not opt for the presumptive taxation scheme of section 44ADA and declares his income from the profession at the lower rate (i.e. less than 50%)

A person can declare income at a lower rate (i.e. less than 50%), however, if he does so, and his income exceeds the maximum amount which is not chargeable to tax, then he is required to maintain the books of account as per the provisions of section 44AA and has to get his accounts audited as per section 44AB.

8. If a person adopts the presumptive taxation scheme but he opts out from the scheme in any of the subsequent five years, then what are the consequences?

There is no such condition u/s 44ADA to offer income under the scheme for consecutive 5 years, This condition only applies to section 44AD i.e. presumptive income scheme for Business. In that case If a person opts for presumptive taxation scheme then he is also require to follow the same scheme for next 5 years. If he failed to do so, then presumptive taxation scheme will not be available for him for next 5 years. [For example, an assessee claims to be taxed on presumptive basis under Section 44AD for AY 2019-20. For AY 2020-21 and 2021-22 also he offers income on basis of presumptive taxation scheme. However, for AY 2022-23, he did not opt for presumptive taxation Scheme. In this case, he will not be eligible to claim benefit of presumptive taxation scheme for next five AYs, i.e. from AY 2023-24 to 2027-28​.]

- CA Sanjay Kabra

For Further queries Contact - sanjay@snkabra.com