Presumptive Taxation u/s 44ADA

Section 44ADA was introduced to extend the benefits of presumptive taxation to specified professionals and to reduce the burden of compliance to small professionals.

Assessees eligible for Presumptive Taxation Scheme under section 44ADA

The below mentioned assessees are eligible for Presumptive Taxation Scheme under Section 44ADA:

• Individuals
• HUFs (Hindu Undivided Families)
• Partnership Firms not including LLPs

Applicability of Section 44ADA

Section 44ADA is applicable to specified professionals referred to in sub-section (1) of Section 44AA and whose total gross receipts does not exceed Fifty Lakh Rupees in a previous year.

As per sub-section(1) of Section 44AA, professionals engaged in the following specified professions are eligible to opt for Presumptive Taxation Scheme u/s 44ADA:

• Legal
• Medical
• Engineering
• Architectural Profession
• The Profession of Accountancy
• Technical Consultancy
• Interior Decoration
• Any other profession as is notified by the Board in the Official Gazette

Presumptive Income Offered

Higher of the following is offered as presumptive income:

• 50% of the total receipts from the profession
• Income offered by the assessee from the profession

For example-

Mr. Sanjay is a lawyer with gross receipts of Rs. 50 lakh for the financial year 2019-20. His overall expenses for the entire financial year towards rent, electricity, telephone, traveling, etc. is Rs.15 lacs. Let us compare Mr. Sanjay's taxable income under both the normal income tax provisions as well as the presumptive scheme.

Income Chargeable to Tax under Normal Income Tax Provisions

Income Chargeable to Tax under Presumptive Taxation Scheme under Section 44ADA

In the above case, the net profit under the presumptive scheme is lower than the normal provisions. Hence, it is beneficial for Mr. Sanjay to offer his income under the presumptive scheme of taxation under section 44ADA.

Maintenance and Audit of Books of Accounts

If an assessee meets the following criteria, then he/she must maintain books and furnish a report of such audit as required under section 44AB

• Profits and gains from the profession offered are lower than 50% of the gross receipts from the profession
• Total income of the assessee exceeds the basic exemption limit

Implications of Opting Filing under Presumptive Taxation

All deductions for business expenses are deemed to have been allowed. Once profits are taxed at 50% of the gross receipts, the balance 50% is deemed to be allowed towards all the business expenses of the assessee. Business expenses may include consumables, cost of services taken from another professional, daily expenses, books, stationery, telephone charges, depreciation on assets (laptop, vehicle, printer etc.) and any other expense incurred to carry on the profession.

Written Down Value of the Assets

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.