Presumptive Taxation Scheme for Professionals is covered under section 44ADA-
The presumptive taxation scheme of section 44ADA is designed to give relief to small taxpayers engaged in specified profession. Professionals whose Total Gross Receipts does not exceed more than Rs. 50 lakh in a financial year, can claim the benefit of this scheme.
The assessee has to file ITR-4 for presumptive income under section 44ADA.
- Legal
- Medical
- Engineering
- Architectural profession
- Accountancy
- Technical consultancy
- Interior decoration
- Film Artists
- Certain sports related persons
- Company Secretaries
- Information technology etc.
Eligibility under this scheme i.e. Section 44ADA-
The following persons can adopt the scheme:
- Resident Individual
- Resident Hindu Undivided Family
- Resident Partnership Firm (not Limited Liability Partnership Firm)
In other words, the scheme cannot be adopted by a non-resident and by any person other than an individual, a HUF or a partnership firm (not Limited Liability Partnership Firm).
Tax computation under this scheme (Section 44ADA)-
In case of a person adopting the provisions of section 44ADA, income will be computed on presumptive basis, i.e. @ 50% of the total gross receipts of the profession. However such person can declare income higher than 50%.
In other words, in case of a person adopting the provisions of section 44ADA, income will not be computed in normal manner.
Note- Any person opting for the presumptive taxation scheme under section 44ADA has to keep in mind the following points-
- The presumptive income computed as per the prescribed rate is the final income and no further expenses will be allowed or disallowed. Separate deduction on account of depreciation is not available. However, the written down value of any asset used in such business shall be calculated as if depreciation as per section 32 is claimed and has been actually allowed.
- The provision of section 44AA (1) relating to maintenance of books of accounts will not apply.
- An assessee declaring his income under this scheme (section 44ADA) can also claim tax benefit of Deductions under Section 80C to 80E.
Advance Tax under this scheme (section 44ADA)-
The whole amount of advance tax is to be paid on or before 15th March of the previous year. If he fails to pay the advance tax by 15th March of previous year, he shall be liable to pay interest as per section 234C.
Consequences if a person opts this scheme (section 44ADA)-
If a person opt this scheme, then he can opt in and out without any restriction of time period.
For Example-
If an assessee opt this scheme (section 44ADA) for AY 2017-18, not opt for AY 2018-19 and again opt for 2019-20. There is no restriction to opt in and out under this scheme.
Note-
If a person does not opt for the presumptive taxation scheme of section 44ADA and declares his income from profession at lower rate (i.e. less than 50%). A person can declare income at lower rate (i.e. less than 50%), however, if he 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.
For Example-
If Mr. Samir is an Interior decorator and running his business. He earned an income of ₹45 lakh in FY 2017-18, In the normal course of things, without using the benefit of presumptive tax, Samir’s taxable income (the amount he would need to pay tax on) would be something like this:
Answer-1 Under Normal Manner-
| Taxable income without using presumptive taxation scheme |
| Total gross income for the year |
₹45 lakh |
Work-related expenses that she plans to claim as tax deductions
- Travel expenses
- Meeting expenses
- Office expenses
|
₹8 lakh |
| Total taxable income (gross income – expenses) |
₹37 lakh |
At Normal manner (without opt Presumptive Taxation Scheme Section 44ADA), Samir would pay income tax on ₹37 lakh.
Answer-2 Under Presumptive Scheme-
| Taxable income after availing presumptive taxation scheme |
| Total gross income for the year |
₹45 lakh |
| Presumed taxable income after availing presumptive taxation scheme |
₹22.50 lakh |
But by availing the benefit of presumptive taxation, he can show his taxable income to be half of his gross income–that is ₹22.50 lakh.
Summary-
| Without presumptive taxation |
With presumptive taxation |
| Taxable income – ₹37 lakh |
Taxable income – ₹22.50 lakh |
| Tax calculation as per slabs for FY17-18 |
Tax calculation as per slabs for FY17-18 |
| Income |
Tax |
Income |
Tax |
| Up to ₹2.5 lakh |
₹0 |
Up to ₹2.5 lakh |
₹0 |
| From ₹2.5 lakh to ₹5 lakh |
₹12,500 |
From ₹2.5 lakh to ₹5 lakh |
₹12,500 |
| From ₹5 lakh to ₹10 lakh |
₹1,00,000 |
From ₹5 lakh to ₹10 lakh |
₹1,00,000 |
| From ₹10 lakh to ₹37 lakh |
₹8,10,000 |
From ₹10 lakh to ₹22.50 lakh |
₹3,75,000 |
| Total |
₹9,22,500 |
Total |
₹4,87,500 |
As above, by using the presumptive taxation scheme, Samir will be able to save ₹4.35 lakh in taxes. That is, he have to pay less amount of Income tax ₹4.35 lakh Kindly note that 3% cess would be added to the taxable income in both cases.