Presumptive Taxation Scheme for Professionals

Presumptive Taxation Scheme for Professionals
Presumptive Taxation Scheme for Professionals
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Presumptive Taxation Scheme for Professionals 

 

Relevant Section

Section 44ADA (New section which was inserted by Finance Act,2016 and was effective from 1st April 2017)

This section was introduced for simplification in taxation & compliance in case of professionals. This scheme would enable the professionals to avail similar benefits like businessmen avail as per the scheme u/s 44AD.

Name of the section

Special provision for computing profits and gains of a profession on the presumptive basis

Eligible Assessee u/s 44ADA 

  • A resident of India who is Individual, Hindu Undivided Family (HUF) and Partnership Firm (but not Limited Liability Partnerships)
  • Whose total gross receipts does not exceed Rs. 50 Lakhs in a financial year and
  • Engaged in professions referred u/s 44AA(1) of the Income Tax Act,1961.
    • Eligible Profession u/s 44AA(1)  Any person engaged in any of the below-mentioned professions
      • 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 Assessing Officer).

Benefits of the scheme u/s 44ADA 

  • If the scheme is adopted then the assessee is not required to maintain books of accounts as per section 44AA.
  • The assessee is not required to get accounts audited as per section 44AB of the Income-tax Act,1961; thereby reducing the compliance burden for small professionals.

Taxable income from profit & gain from the profession

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

If the assessee wants to declare lower taxable income

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 A.Y 19-20 for an individual)

Then

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

No deduction will be allowed

An assessee adopting the presumptive taxation scheme 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 to 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.

Advance Tax

The due dates for payment of different installments of advance tax are not applicable to 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 upto 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.
  • 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).

Other Important Points

  • 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.
  • Irrespective of whether a professional firm opts for section 44ADA, if the partners (professionals) want they can opt for the scheme. Their income by way of interest and remuneration from the firm can be taxed accordingly.
  • A professional firm does not have any provision to deduct interest and remuneration paid to partners if the presumptive scheme is adopted.

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About CA Ankita Khetan 162 Articles
Ankita is a Chartered Accountant in practice and holds a Diploma in IFRS (from ACCA, UK). She is also a Commerce PG and Certified Independent Director (from IICA). She holds a certification in Forex and Treasury Management. Her area of expertise is GST and Income tax. She is passionate about reading, writing, and sharing knowledge on areas related to finance and taxation.

3 Comments

  1. If the Assessee has received the Professional Income of Rs. 40 lacs. He has not incurred any business expenditure. He has made the Fixed Deposit of Rs. 40 lacs and offered the Income for taxation of Rs. 20/- lacs. Is it OK?

    For drawing, the Assessee is having other Source of Income.

  2. A person remuneration,profit income from partnership firm. And other professional income received.i.t. return filed sec 44ad or sec 44ada.

    Maximum amount Limit for cash on hand at the end of the finicial year(March) individual person and trading firm in balance sheet.

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