Section 44ADA of Income Tax - Presumptive Taxation Scheme for Professionals

Section 44ADA of Income Tax - Presumptive Taxation Scheme for Professionals

There is a common misconception among people that freelance income is not liable to taxation. But let us correct you! Income Tax of India offers various provisions to simplify the taxation process for small businesses and professionals. Among them, one section is Section 44ADA, which is a part of the presumptive taxation scheme. It was introduced to reduce the tax compliance burden on self-employed professionals.

Here, we’ll have a detailed look at section 44ADA, its applicability, benefits, and important considerations.

First, we’ll have a quick overview of what a presumptive taxation scheme is, so you can have a better understanding of section 44ADA.

What is a Presumptive Taxation Scheme?

The Presumptive Taxation Scheme is a simplified tax scheme that allows small businesses and professionals to declare their income at a fixed percentage of their total turnover or gross receipts without the need to maintain detailed books of accounts or undergo audits.

What is Section 44ADA of the Income Tax Act?

Section 44ADA of the Income Tax Act allows eligible professionals to declare 50% of their gross receipts as their income, and the remaining is deemed to cover expenses. Previously, the threshold limit u/s 44ADA was Rs 50 lakh, but in Union Budget 2023, it was revised to Rs 75 lakh.

Presumptive Taxation Limits According to Budget 2023

Who Is Eligible for Section 44ADA?

The below assessees are eligible for Section 44ADA:

●     Individuals

●     Partnership firms, excluding LLPs (limited liability partnerships)

Also, the professionals working in the below fields are eligible.

●     Legal professionals (lawyers, advocates)

●     Medical professionals (doctors, dentists)

●     Engineers and architects

●     Accountants (chartered accountants, company secretaries, cost accountants)

●     Interior designers

●     Consultants

●     Any other profession as specified by CBDT (Central Board of Direct Taxes).

Which ITR form is applicable for 44ADA?

Professionals who wish to opt for Section 44ADA must have to file ITR-4, specifically designed for those opting for presumptive taxation. You can connect with our tax experts at +91-8955833830 and drop a WhatsApp query to know more.

Benefits of Section 44ADA

Below are some of the benefits of Section 44ADA.

●     Easy Tax Calculation: Section 44ADA makes tax calculations easier. Professionals don’t need to keep detailed financial records or get their accounts audited if they choose this scheme, as long as they declare 50% of their gross receipts as income.

●     No Detailed Expense Tracking: Since 50% of the gross receipts are assumed to cover all expenses, there’s no need to track every single expense. This makes managing taxes simpler.

●     Less Paperwork: The scheme reduces the amount of paperwork needed.

Frequently Asked Questions (FAQs)

1.     What is Section 44ADA?

Section 44ADA is a provision under the Income Tax Act that allows certain professionals to declare 50% of the gross receipts as their business income without maintaining detailed books of accounts or undergoing audits.

2.     What percentage of income is presumed under Section 44ADA?

Under Section 44ADA, 50% of the gross receipts are presumed to be the taxable income of the professional.

3.     Can I claim further deductions for expenses under Section 44ADA?

No, once you declare income under Section 44ADA, you cannot claim any additional deductions for expenses.

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