Home > Income Tax > Business or Profession > Section 44ADA – Presumptive Taxation Scheme for Professionals

Section 44ADA – Presumptive Taxation Scheme for Professionals

Applicable for FY 2016-17 and FY 2017-18

From financial year 2016-17, a new Section 44ADA is introduced for presumptive income for professionals. This section is similar to section 44AD for traders.

Under this section professionals such as legal, medical, engineering, architect, accountancy, technical consultancy, interior decoration or any of the profession as given in section 44AA are allowed to presume 50% of the gross receipts as net profit. This is applicable only to professional whose gross total receipts does not exceed Rs. 50 lakh rupees.

The scheme is applicable to resident assessee who is an individual, Hindu Undivided Family (HUF) or partnership firm but not Limited Liability Partnership (LLP) and company.

The assessee can opt in and out of scheme at any time. For example, a professional may file his return for AY 2017-18 under section 44ADA and opt out it for the AY 2018-19. There is no restrictions imposed in this regard .

A partner of a professional firm gets interest and salary from the firm under section 40b. Such partner can not opt for presumptive scheme under section 44ADA in respect of such salary and interest.

Notified Professions

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

Claiming Higher or Lower Profit

In case an eligible assessee carrying on the eligible profession, the profits and gains of such profession is deemed to be 50% of the gross receipts from such profession. However, the assessee can claim higher profits.

However, an assessee can claim profits to be lower than 50% by maintaining books of account as mentioned in section 44AA and gets them audited as per section 44AB.

If the total income of asseessee (i.e 50% of gross receipts plus all other incomes) doesn’t exceed the maximum amount not chargeable to tax i.e Rs. 2,50000 or 5,00,000, then he is not required to maintain accounts and get them audited.

Deductions from deemed profit

No deduction of Section 30 to 38 (including unabsorbed depreciation) is allowed from such deemed profit. Therefore no deduction of such expenses can be taken from such deemed profit.

Where the eligible assessee is a partnership firm, salary and interest to partners subject to section 40b shall be deducted from such deemed profit.

And also disallowance under sections 40,40A, 43B is not allowed as deduction if income is deemed under this section.

WDV of depreciable assets

The written down value of any asset of an eligible profession shall be deemed to have been calculated as if the eligible assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant years.

Maintenance of Accounts

The assessee is also not required to maintain books of account under section 44AA if he files return under section 44ADA. However, such an assessee shall be expected to maintain minimum records such as bill books to verify his gross receipts as and when required.

Advance Tax

For F.y 2016-17, persons filing return under this section are required to pay advance tax in four installments. While in F.y 2017-18 such persons has to pay advance tax in one installment only, on or before 15th March of the financial year.

Examples

Mr.X, a practising Chartered Accountant has gross receipt of Rs.42 lakhs . He had paid Rs. 3,60,000 towards rent without deducting tax at source. He has unabsorbed depreciation of Rs. 2,40,000. Calculate his total income if he opts for presumptive taxation under section 44ADA ?

Since , Mr.X is a practising CA whose gross receipts are not more than Rs. 50 lakhs, he is eligible to opt for section 44ADA. 50% of his gross receipts or a higher amount shall be deemed to be the profits and gains of such profession. So, 50% of 42 lakhs = 21 lakhs, will be deemed to be his total income. Unabsorbed depreciation under section 32 is not allowed as deduction.

Also Read: Income Tax Department Guide

25 comments

  1. If gross receipts of a CA in practice is Rs.22 Lac, and he shows income at Rs.9 Lac, is he required to get audit u/s 44AB as income is less than 50%

  2. S S Subramanian

    My daughter is a piano teacher. She is teaching privately in the music schools including music schools run by Music Directors like A R Rahman. She is professionally qualified in UK. The music schools pay her after deducting TDS under SEC 194J. She gets about Rs 6lacs a year. Can she opt for sec 44ADA

    • Rohit Pithisaria

      Yes, she can opt for section 44ADA.

      • S S Subramanian

        Is she has to be engaged in professions under sec 44A(1)?

        • Rohit Pithisaria

          I didn’t get you. For more clarification, TDS is deducted u/s 194J which is fee for technical or professional services not under 194C which is for contractor. So I think you can opt for 44ADA.

          • S S Subramanian

            44ADA specifies that assesses in Specified professions mentioned in 44A(1). The professions mentioned in sec 44 A are” Professions referred in Section 44AA of the Act viz. Medical/Legal/Engineering/Architect/Accountancy/Technical Consultancy/Interior Decoration/Authorized Representation/Film Artist/C.S”. Whether private tutor who is professionaly qualified and where TDS deducted under sec 194J can opt for sec 44ADA. There is lot of confusion, I will appreciate your clarification..

          • Rohit Pithisaria

            Yes, you can file your return u/s 44ADA. Few points which I considered in your case are:-
            1) TDS is deducted u/s 194J which is a section of TDS on professional or technical skills.
            2) Technical consultancy is the word which is mentioned in the Income Tax Act. Please check this article for more details http://www.business-standard.com/article/economy-policy/hp-agrawal-scope-of-fees-for-technical-services-clarified-112080600032_1.html
            3) Your daughter is professional qualified (have some kind of certification).

  3. CA Chandravijay Shah

    Gross Professional Fee Rs. 36,00,000 + Pension Income Rs. 25,00,000 = Rs. 61,00,000. Is he eligible for 44ADA?

    Answer to above question depends on answer to the following question: Total Gross Receipts qua all Heads of Income or Professional Income only?

  4. DR mahesh shah

    i am having professinal income plus STCG and LTCG and Dividend income
    can i opt for 44ADa
    what will be criteria for tax?

    • Prateek Agarwal

      IF your receipts are up to rs 50 laksh, you can file under presumptive taxation @ 50% for such receipts. STCG and LTCG are taxable in their usual manner and dividend income is exempt from tax.

  5. A doctor working in a medical college has income in form of salary paid by the institution.Is he eligible for tax deduction under section 44ADA or is a doctor doing private practice only is eligible?

  6. CA SHRI NIWAS SAINI

    whether salary and interest to partners of eligible professional firm deductible from presumptive income under section 44ADA in absence of specific provision to do so.

    • Prateek Agarwal

      Yes, such salary and interest should be deductible. The section only disallows expenses come under section 30 to 38 and such salary and remuneration comes under section 40b.

  7. My brother is it manager in c.govt on contract basis and tds is deducted under section 194j. He gets rs.6 lakhs per annum. Is he eligible under section 44ada? Is basic exemption of rs.250000 eligible from presumptive taxable income under 44ada and tax credit of rs.5000?
    He

  8. If a Doctor has professional receipts of Rs.45 Lakhs and expenses of Rs.5 Lakhs then as per section 44ADA tax will be applicable on what amount? whether 50% income benefit can be applied on Rs.40 Lakhs?

    • Rohit Pithisaria

      50% of the gross receipt of the business will be considered as net profit from profession. In your case net profit will be 22.5 Lakh.

    • Ca Anand Jain

      I think that net profit of Rs.40 lacs will be income chargeable to tax . OTHERWISE the expenses need to be debited from your bank account.As without this under scrutiny your deemed income will be rejected as it may be possible dat u haven’t spent for expenses and your actual profit has vide variation den presumptive income

      • Prateek Agarwal

        In presumptive taxation you don’t need to show the expenses and actual profit may vary from the presumptive income.

      • When you adopt presumptive scheme, the real profit maybe more or less than the presumptive income. But presumptive income is taxable.

  9. In the Budget of 2016, businesses with turnover up to Rs 2crores can opt for presumptive taxation scheme. Earlier this limit was Rs 1 crore under section 44ad.

    • Rohit Pithisaria

      Thanks for pointing out the mistake. I have updated the limit to Rs 2 crore in this page.

close-link
TaxAdda Assistant - Chrome Extension for Easy Working on GST Portal

It will automate 3 works on GST portal for you
  1. Auto-fill payment page in GST portal and calculate adjustments and cash payment required. 
  2. Copy tax payable details and paste it in email or skpye for sending to clients.
  3. Auto fill challan with the amount of GST payable.
     
Download from Chrome Webstore  (Free Till 31st January 2018) or Know More

close-link
Remain Updated with GST & Income Tax
Join 20K subscribers