Understanding Section 44ADA of the Income Tax Act

Section 44ADA of the Income Tax Act provides a presumptive taxation scheme for certain professionals. It allows eligible individuals to tax on 50% of their gross income calculated as per the provision of the Income Tax Act. Eligible professional income under section 44ADA less than ₹50 lakhs (the limit is revised to 75 Lakhs w.e.f. 01.04.2023) and those engaged in specified occupations can opt for this scheme. It has been brought up with an objective to simplify tax compliance for self-employed individuals while reducing their tax liability. Section 44ADA was introduced to extend the scheme of simplified presumptive taxation to specified professionals. The presumptive scheme of taxation reduces the tax compliance burden on small professionals and also promotes ease of doing business. Under the presumptive scheme of taxation, profits are presumed at 50% of the gross receipts.
Budget 2023 Brought Updates in Relation to the Specified Limit of Turnover About Section 44ADA:-

Category	Previous Limit	Revised Limit
Sec 44ADA: For professionals like doctors, lawyers, engineers, etc.	Rs. 50 lakhs	Rs. 75 lakhs

1. Who is eligible for 44ADA?

a.)The following Indian assesses are eligible:

• Individuals
• Partnership firms Registration (note that limited liability partnerships are not eligible)

b.) Professionals engaged in the following professions are eligible:

• Whose gross income is ₹50 lakhs during a year from the eligible profession.
• Required to declare Income as per Form ITR-4.

c.) The eligible professions are as under:

• Legal
• Medical
• Engineering
• Architecture
• Accountancy
• Technical consultancy
• Interior decoration
• Movie industry professionals like producers, directors, actors, editors, music directors and others
• Authorised representatives (excludes employees and accountants)
• Any other profession notified by the Central Board of Direct Taxation (CBDC)

2. What are the benefits to the assessee for opting for Section 44ADA of the Income Tax Act?

By following Section 44ADA, an assessee would get the following benefits:

• No need to maintain books required under Section 44AA.
• No requirement to have accounts audited under Section 44AB.

3. How to calculate Income Tax by opting Presumptive Income scheme as available under section 44ADA of Income Tax?

The following conditions must be met to choose the Presumptive Taxation Scheme under Section 44ADA of the Income Tax Act:

• The profession’s gross receipts should be less than or equivalent to INR 50 lakh.
• The limit is increased to INR 75 lakhs (w.e.f. 01.04.2023) if the total amount received in cash does not exceed 5 percent of the total gross receipts of the previous year.
• In the ITR, the taxpayer must record 50% or more of the gross receipts as income.
• Under Normal Provisions: –

Gross Receipts	Rs. 30,00,000
Less: Expenses	Rs.10,00,000
Net Profit	Rs. 20,00,000

• Under Presumptive scheme: –

Gross Receipts	Rs. 30,00,000
Presumptive income at 50% of the gross receipts	Rs. 15,00,000
Net profit chargeable to tax	Rs. 15,00,000

We can compute the net income chargeable to tax under the presumptive taxation scheme: –

Total gross receipt	Rs. 55,00,000 ( this is under the increased/ revised limit of Rs.75 lakh)
Cash receipts ( i.e, it should be less than 5% of the total receipts)Rs. 2,50,000 (which is less than 5% of total receipts)
Presumptive income chargeable to tax	Rs. 27,50,000 ( 50% of the gross receipts)

4. Important things regarding Section 44ADA: –

• Only individuals and certain partnership firms are eligible, not limited liability partnerships. The professional must be in a specified field like engineering, medicine, law, etc.
• Annual gross receipts from the profession should not exceed ₹75 lakhs to claim the presumptive taxation benefit.
• If income is offered at less than 50% of gross receipts or total income exceeds the basic exemption limit, books of accounts need to be maintained.
• Profits are deemed at 50% of gross receipts. No other expenses can be claimed as a deduction under this scheme.
• Partnership firms availing this benefit cannot claim a deduction for partners’ remuneration.
• Advance tax instalment dates apply even under presumptive taxation. Interest is levied for late payments. However, the only due date for advance tax is the 15^th

Taxcellent guide you in calculating tax liability as per section 44ADA of the Income Tax Act and also assist you in Income Tax Return Filing Services in Delhi by using Form ITR-4. Taxcellent guides you in proper tax planning as well as tax savings.