There is a Special Tax Provision for Professionals,
u/s Section 44ADA for AY 2023-24 used by Majority of Professionals,
In case of individual or a partnership firm other than a limited liability partnership,
In Respect of Profits and Gains of Specified Professionals,
For Total Gross Receipts from Professional Income Earned up to 50lacs
In order to give Relief, Simplify, Ease & Reduce, the burden of Tax Compliance
For Small Taxpayers Resident In India
Without Having to Maintain Books of Accounts,
Without Having to get the Accounts Audited,
A Sum equal to 50% or higher % of your Gross Receipts
Shall be Deemed to be Profits & Gains from such Profession.
Though there are 3 sections as per Income Tax Act for Presumptive Taxation for Professionals,
But I will be covering mainly Section 44ADA for AY 2023-24
I will be covering the following aspects,
44ADA Profession list of Specified Professionals as per Sec 44AA for Section 44ADA for AY 2023-24.
Every Person carrying on Legal, Medical, Architect, Accountancy, Interior decorator, Technical Consultant, Engineering or, any other Profession is notified by the Board in the Official Gazette.
Gross Receipts- Income under 44ADA means
Any Eligible Assessee whose Total Gross Receipts from Professional Income of Specified Profession, is less than or equal to Rs.50 Lacs in a Previous Year, can declare Income at a Prescribed rate u/s Section 44ADA for AY 2023-24.
Eligible Assessee-
In the case of an Assessee, being a Resident Individual & Partnership Firm can Opt for Section 44ADA for AY 2023-24. Non-Residents and Other Persons are not Eligible Assessees for Sec 44ADA.
| Assessee | Resident and Resident But Not Ordinarily Resident In India. | Non-Resident |
| Individual | Yes | No |
| Partnership Firm | Yes | No |
| HUF | No | No |
| LLP | No | No |
| Company | No | No |
| Trust | No | No |
| Co-Operative Society | No | No |
| AOP/BOI | No | No |
| Any Other Body Corporate | No | No |
| Any Other Artificial Jurisdiction Person | No | No |
Illustration:
Can a company opt for 44ADA? No
Deemed Profit:
A Sum Equal to 50% of the Total Gross Receipts or of the Specified Professional or a Sum Higher than 50%, as Claimed to have been earned by the Assessee, shall be deemed to be Profits and Gains from Profession.
Deemed Profit is calculated at 50% of Gross Receipts if Gross Receipts are Less Than or Equal to Rs.50 Lacs.
Deemed Profit can be Greater than 50% of Gross Receipts provided Gross Receipts are Less Than or Equal to Rs.50 Lacs., as per your Actual Calculation, still, you can Opt for Section 44ADA for AY 2023-24.
Deemed Profit Can’t be less than 50% of Gross Receipts, in which case you will have to get your Books of Accounts written and Tax Audit done accordingly.
In the event of loss arising from Profits and Gains of Business & Profession, Tax Audit for Professionals is Compulsory.
How do you calculate Presumptive Income under 44ADA?-section 44ADA Example
Particular | Normal Profit as per Actuals | Deemed Profit=50% of GR, GR<50Lacs | Deemed Profit>50% of GR, GR<50Lacs | Deemed Profit<50% of GR, GR<50Lacs | GR>50Lacs | |
| Gross Receipts | 50,00,000 | 50,00,000 | 50,00,000 | 50,00,000 | 50,00,000 | |
| Expenses | 10,00,000 | Deemed Expenses=50% of Gross Receipts | Deemed Expenses=30% of Gross Receipts | Deemed Expenses=60% of Gross Receipts | 20,00,000 | |
| Profit | 40,00,000 | 25,00,000 | 35,00,000 | 20,00,000 | 30,00,000 | |
| Is Deemed Profit Beneficial than Normal Profit | Yes | Yes | Tax Audit compulsory 44ADA not applicable. | Tax Audit compulsory 44ADA not applicable. |
44ADA Misuse:
Eligible Assessee’s earning Professional Income from Specified Profession sometimes take flat 50% of Gross Receipts as Deemed Profit,
Even if Actual Expenses incurred as per their Bank, Payment Vouchers, Bills may be less than 50%,
Either due to ignorance or lack of Professional guidance.
So, if Expenses incurred are less than 50% of Gross Receipts, then Deemed Profit should be Calculated Accordingly.
Illustration:
| Actual Profit | Deemed Profit(44ADA) | |
| Gross Receipts | 50,00,000 | 50,00,000 |
| Expense | 10,00,000 (As per the Bank, Expense Bills, Payment Vouchers) | Deemed Expenses 25,00,000 (50% of Gross Receipts) |
| Profit | 40,00,000 | 25,00,000 |
| 44ADA misuse | Rs.40Lacs-25Lacs=Rs15Lacs(Misuse) |
Features of Section 44ADA for AY 2023-24 of Presumptive Taxation 44ADA Applicable only for Resident Individual, and Partnership Firm.
Table compiling all the details of all 3 Cases as follows,
| Particulars | Presumptive Taxation 44ADA | Tax Audit for Professionals –44AB | Tax Audit for Professionals –44AB |
| Case 1 | Case 2 | Case 3 | |
| Eligible Assessee | Resident Individual, Partnership Firm | Resident Individual, Partnership Firm | Resident Individual, Partnership Firm |
| Gross Receipts from Professional Income | Up to Rs.50Lacs | Above Rs.50Lacs | Up to Rs.50Lacs |
| Profit | Deemed Profit=At least 50% or more of Gross Receipts. | Actuals as per the Profit/Loss account. Profit=Gross Receipts-all Business Expenses | Profit=Any % less than 50% of Gross Receipts or in case of Loss. |
| Books of Accounts | Not Required to Be maintained | Yes, Compulsory to be maintained in both Tax Audit Cases | |
| Advance Tax | Last Instalment | All 4 Installments | |
| TDS Filings | N. A | Yes | |
| Tax Audit | N. A | Yes | |
| 5 Years restriction | Yes | N.A | |
| Business Expenses | Disallowed | Allowed | |
| Salary & Interest to partners by a Partnership Firm subject to Sec40b | Not Allowed as an Expense against Gross Income of the Firm | Allowed as a Deduction as an Expense. | |
| Deduction u/s 80 | Yes | Yes | |
| WDV of Depreciable Assets | Depreciation is not allowed as a business Expense but WDV of Assets to be calculated. | Depreciation is allowed as an Expense from the Gross Receipts. Hence WDV of Assets is calculated every Year as per Fixed Assets Schedule. | |
| Due Date Of Return Filing | 31St July 2023 | 31th October 2023 | |
| Revised Return | 31st December 2023 or completion of assessment(earlier) | 31st December 2023 or completion of assessment(earlier) | |
| Updated Return | With additional tax @25% before 31st March 2025 or @50% before 31st March 2026 | With additional tax @25% before 31st March 2025 or @50% before 31st March 2026 | |
| Due Date for Furnishing Audit Report | NA | 30th Sept 2023 |
Is Presumptive Taxation for Professionals mandatory?
Person Eligible, being a Specified Professional, may Opt for Presumptive as per his/her choice.
It is not mandatory to adopt Presumptive Taxation if your Gross Receipts are up to Rs.50 Lacs.
You are free to maintain a Regular set of Books of Accounts and file Income Tax Returns in ITR3
If you opt for Section 44ADA for AY 2022-23, then you can File Income Tax Returns in ITR form for Presumptive Income ITR 4
Presumptive Taxation is allowed only for Professional Income and not for all other Incomes of the Eligible Assessee.
The Gross Receipts earned from Professional Fee are subject to Rs.50 Lacs.
If you have Income from Salary, House property, Other sources in addition to Professional Income,
the 44ADA Limit for ay 2023-24 will be only for Professional Income.
Can Section 44AD and Section 44ADA be Claimed simultaneously?
Yes, Sec 44AD is applicable for All Small Businesses Other than Specified Professionals.
If you have Income from Other businesses and Income from Profession, then you can claim both simultaneously and file ITR for Presumptive Income ITR 4.
Income Tax Return 4 Sugam Eligibility
Particulars | ITR form for Presumptive Income ITR 4 | ITR 3, ITR 5, ITR 6, ITR 7 |
| Eligible Assessee | Resident Individual, HUF, Partnership Firm only. | All Resident and Non-Resident. |
| Salary Income | Yes | Yes |
| Income From House Property from more than One House and/or Joint Owner of House | No | Yes |
| Income From Business & Profession | Only Presumptive Business Income allowed. | All Business & Profession Income is allowed including Presumptive Income. |
| Income From Capital Gains | No | Yes |
| Income From Other Sources | Yes | Yes |
| Director of the Company | No | Yes |
| Partner of the Partnership Firm receiving Salary & Interest | No | Yes |
| Investment in Unlisted Shares of a Company | No | Yes |
| Any Assets Located Outside India | No | Yes |
| Income Taxable at Special Rates | No | Yes |
| Lottery Income or Income from Owning and Maintaining Horse Races | No | Yes |
| Agricultural Income More than Rs.5,000 | No | Yes |
| Any Brought Forward Losses | No | Yes |
| Income Earned Outside India | No | Yes |
| Has Deferred Income Tax on ESOP from Employer | No | Yes |
How to File My Return? Online and Offline.
Online mode is by selecting the Options of basic details pertaining to your Income on the Income Tax website, filling in various Income details, and uploading the Return.
The offline Filing can be done by Downloading the ITR in Excel or Java Utility or by using various Software available,
Fill the details of 5 heads of Income, Deductions, Import 26AS of all Taxes paid in advance or Tax Deducted at Source, Pay the Balance Taxes,
Upload the Return, Save the Acknowledgement,
Either Sign the ITR through OTP or EVC online or send it manually to CPC Bangalore and complete the Filing Procedure.
The Original and Belated Returns can be revised,
If you Discover any Omissions or Wrong Statements therein Unintentionally,
Revised Return can be Furnished Before the End of the Relevant Assessment Year 31st December 2023 or Before the Completion of the Assessment, whichever is earlier.
Interest & Penalty
For Non -Filing, Non-Payment of Advance Tax, wrong Filing will be Levied u/s 234 at Rs.5000 to Rs.10,000 and interest at 1% pm or part of the month thereof.
Income patterns of different Professionals
Professionals like you either receive Salary Income or Consultation fees or both depending on your working patterns.
Salary Income
Professionals working in any Organization on Fixed pay monthly, earn Salary Income, on which TDS u/s 192 is deducted.
Professional/Consultancy Income
Professionals either have their own setup, work out of Leased Property,
Professionals are attached to Organizations as consultants or are Freelancers who earn Professional Fee, on which TDS u/s 194J is deducted.
Filing Expense, statutory Payments
The amount that you will spend in either Presumptive or audit cases
It is recommended that you prepare a rough Income and Expense statement so that you can estimate the Profit arising from your Professional Income.
On the basis of this work, you will get an idea of whether you have incurred Approximately 50% on Professional Expenses and whether Section 44ADA for AY 2023-24 will be applicable in Your case.
In Presumptive Taxation for Professionals, there are only Tax Filing fees, if Tax Filing is outsourced to a Professional, to be paid in addition to any Tax liability that arises based on your Income, since Books of Accounts are not required to be maintained.
In Audit cases, there is Accountants’ Salary, Accounting Software, TDS Return Filings, Tax Audit Fees, Tax Filing Fees, GST, and other Statutory Compliances to be Paid in Addition to any Tax liability that arises based on your Income.
Old Tax Regime vs New Tax Regime, which is better
The Main Difference between Old Scheme and New Scheme is that Most of the Deductions are taken away if you opt for the New Scheme.
So, if you have a Housing loan or LIC/PPF Investments or any other Deductions, it may be better to Evaluate between the 2 Options, based on your Total Income, and Act accordingly.
Moreover, if you are salaried, you can opt to change between the Schemes and choose whichever is more Beneficial to you every Year.
In case of Professional Income u/s 44ADA received, you can choose to shift between the Scheme only once after opting out from new scheme.
Deductions u/s 80
You can claim various Deductions against your Total Income as follows,
Life insurance premium paid, Investment in fixed deposit/Bonds, Investment in NSC, Tuition Fee for Two Children, Repayment of Housing Loan, Mediclaim, Donations, etc.
Conclusion: Professionals can choose Section 44ADA for AY 2023-24, if Professional Income is up to 50Lacs, Deemed Profit is calculated at 50% of Gross Receipts, will be deemed to be Profits & Gains from Profession, need not maintain books of accounts nor get their Accounts Audited.
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Very simple and helpful article for presumptive tax for professionals