SECTION 44ADA- PRESUMPTIVE TAXATION SCHEME FOR PROFESSIONALS

Section 44ADA was inserted after Section 44AD of Income Tax Act, 1961 with the effect from the financial year 2016-2017. This section provides special provisions for computing profits and gains of profession on a presumptive basis.

The Presumptive Taxation Scheme is inserted to give relaxation to all small taxpayers who are engaged in a specified profession.

PROVISIONS RELATED TO SCHEME:

• An assessee being a resident in India who is engaged in profession referred to subsection(1) of section 44AA and whose total gross receipts do not exceed Rs.50 lakhs in the previous year.
• Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed.
• The written down value of any asset used for the purposes of profession shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.
• An assessee who claims that his profits and gains from the profession are lower than the profits and gains specified in sub-section (1) and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under subsection (1) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.

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

• Legal
• Medical
• Engineering or architectural
• Accountancy
• Technical consultancy
• Interior decoration
• Any other profession as notified by CBDT

PURPOSE OF THIS SCHEME:

With the recommendation of Justice Easwar Committee, this section was proposed for simplification of taxation of professionals

Following objects are stated to be achieved through this proposal

• To reduce the compliance burden of small professionals
• To facilitate ease of doing a profession

Who are the eligible professionals?

Persons engaged in any of the following professions:

• Legal
• Medical
• Engineering
• Architecture
• Accountancy
• Technical consultancy
• Interior decoration
• Authorized representatives
• Film Artists
• Certain sports-related persons
• Company Secretaries and
• Information technology

Benefits:

• An assessee opting for this scheme will be benefited by:
• No need of maintaining books of accounts u/s 44AA
• No need of getting the books of accounts audited u/s 44AB

Computation of Taxable Income in case a person opting for presumptive taxation scheme of section 44ADA:

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

A person who adopts the presumptive taxation scheme is deemed to have claimed all deduction of expenses. Any further claim of the 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.

Provisions related to a person who does not opt for the presumptive taxation scheme of section 44ADA:

A person can declare income at lower rate i.e. less than 50% if a person 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.