We know that Section 44AD of Income Tax Act, 1961s provides for presumptive taxation scheme for eligible persons engaged in eligible business. However such scheme is not available for professionals. Hence, for reducing the compliance burden, the Finance Act, 2016 has inserted the section 44ADA being a special provision for computing profits and gains of profession on presumptive basis.
Objective-
To provide relief to small taxpayers engaged in specified profession.
Eligible Assessee -
Person resident in India carrying on any of the following profession (“specified profession”):
- Legal
- Medical
- Engineering or architectural
- Accountancy
- Technical consultancy
- Interior decoration
- Any other profession as notified by CBDT in the Official Gazette.
and total gross receipts does not exceed fifty lakh rupees in a previous year.
Computation of income –
Once the person opts for the presumptive taxation under section 44ADA, income would be computed based on presumptive basis i.e., at 50% of the total gross receipt of the profession. However, he can declareincome higher than 50%.
Deductions from the income computed above -
Any deduction allowable under the provisions of sections 30 to 38 shall be deemed to have been already given full effect to and no further deduction under those sections shall be allowed.
Separate deduction on account of depreciation is also not available as depreciation is provided under section 32.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.
What if the assessee claims the lower income than the income computed above?
Then, he shall be required to:
- Keep and maintain such books of account and other documents as required under sub-section (1) of section 44AA and
- Get them audited and furnish a report of such audit as required under section 44AB. [If total income exceeds the maximum amount which is not chargeable to income-tax]
And income would be computation of under normal provision of Income Tax Act, 1961 i.e., it will be computed after allowing deduction in respect of expenses which are deductible as per the Income-tax Actand after disallowing expenses which are not deductible as per the Income-tax Act.
Advantages -
Person opting to scheme:
1) Can declare the income at prescribed rate [no question of disallowance] and
2) No need to maintenance of books of accounts under section 44AA and getting the same audited under section 44AB.
Other Points:
- A person opting for the presumptive taxation scheme under sections 44ADA is also liable to pay advance tax.
- No deduction is available for the expenditure in the nature of salary, remuneration and interest paid to the partners as per section 40(b)
Disclaimer: Author is not responsible for the correctness or otherwise of the contents published herein. If any errors or omissions are noticed, the same may be brought to the attention of the author.
The author can also be reached at Koushik.d.c@gmail.com.
CAclubindia
