Presumptive Taxation Scheme for Professionals

Section 44ADA of the Income Tax Act,1961 is a special provision for computing profits and gains of profession on a presumptive basis.

Note: Section 44ADA was inserted by Finance Act,2016 and effective from 1st April 2017.

If professionals opt for the presumptive taxation scheme then

> Professionals will not be required to maintain books of accounts as required by section 44AA.

> Professionals will not be required to get books of accounts audited u/s 44AB until the gross receipts do not exceed Rs 50 lakhs in a financial year.

Note: The above scheme was introduced to give relief to small professionals by reducing the compliance burden of maintaining regular books of accounts as required by section 44AA.

A resident of India who is an Individual, Hindu Undivided Family (HUF) and Partnership Firm (but not Limited Liability Partnerships) whose total gross receipts do not exceed Rs. 50 Lakhs in a financial year and is engaged in professions referred u/s 44AA(1) of the Income Tax Act,1961.

Note: HUF is not eligible for presumptive taxation income u/s 44ADA

Following professions are referred u/s 44AA(1)
> Legal or
> Medical or
> Engineering or
> Architectural or
> Accountancy or
> Technical Consultancy or
> Interior Decoration or
> Any other profession as is notified by the Board in the Official Gazette

(Note: As per section 44AA(1) it is mandatory for the above professionals to maintain books of account & other documents which may enable the computation of taxable income possible for the Assessing Officer).

Income from the profession will be taxed under the head (PGBP)

Taxable income from the profession will be higher of

50% of the gross receipts from the profession
OR
Income from profession offered by the assessee.

Note: No deduction will be allowed

An assessee opting for the presumptive taxation scheme u/s 44ADA is deemed to have claimed all deduction of expenses as well as depreciation. No further claim of any deduction is allowed when profit/income is declared @ 50%.

> Any allowable deduction/ expenses under the provisions of sections 30 to 38  for calculating profit & gain of the profession will be considered as if the full effect has been already given and no further deduction shall be allowed.

> Even deduction in respect of the depreciation will not be allowed separately.  However, assets WDV (Written Down Value) shall be calculated as if depreciation under section 32 is claimed and has been actually allowed.

> An assessee/professional opting for the scheme u/s 44ADA can opt in & opt out at any time without any restriction of following for 5 consecutive years like 44AD.

> Professionals who are partners in a professional firm have the liberty to opt for section 44ADA or not irrespective of the fact whether the professional firm has opted for section 44ADA or not.

> If a professional firm opts for section 44ADA then the firm will not be eligible to deduct interest and remuneration paid to partners.

> If a professional firm does not opt for section 44ADA then the firm will be eligible to deduct interest and remuneration paid to partners.

The due date for filing a return of income for professionals opting for presumptive taxation will be the same as the due date for assessees not required to get their books of accounts audited i.e 31st July of the assessment year. (Verify if the due date has been extended by CBDT)

ITR-4 needs to be filed if a professional opts for section 44ADA.

The due dates for payment of different installments of advance tax are not applicable to the assessee opting for the scheme, unlike the regular assessee.

The total amount of tax as advance tax needs to be paid on or before 15th March of the relevant year. (Note: Any amount paid as advance tax up to 31st March of the financial year will be treated as advance tax.)

Interest @ 1% on shortfall u/s 234C will be levied for payment made post 15th March.

Note: The incentive of paying advance tax in one installment is applicable only for the profession covered u/s 44ADA. If the assessee earns income from other businesses or any other head of income and the tax liability is more than Rs. 10,000/- (for income other than 44ADA) then advance tax needs to be paid as per regular provisions for those incomes (for income other than 44ADA).

If the assessee claims that his income from the profession is lower than 50% of gross receipts and
the total income exceeds the basic exemption limit (i.e. 2.5 Lakhs for an individual)

Then

> Books of accounts as per 44AA of the Income-tax Act,1961 are mandatory
> Accounts need to be audited and a tax audit report needs to be furnished as per 44AB of the Income-tax Act,1961.

Note: The due date for filing a return of income for professionals who are subject to tax audit will be the same as the due date for ITR filing for the assessees who are required to get their books of accounts audited i.e 30th September of the assessment year. And the due date for the tax audit report will be 31st October of the assessment year. (Verify if the due date has been extended by CBDT)