What is Section 44ADA for AY 2023-24 ?

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

Section 44ADA for ay 2021-22
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.

44ADA Profession List
44ADA Profession List

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.

AssesseeResident and Resident But Not Ordinarily Resident In India.Non-Resident
IndividualYesNo
Partnership FirmYesNo
HUFNoNo
LLPNoNo
CompanyNoNo
TrustNoNo
Co-Operative SocietyNoNo
AOP/BOINoNo
Any Other Body CorporateNoNo
Any Other Artificial Jurisdiction PersonNoNo
Eligible for 44ADA

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 ActualsDeemed Profit=50% of GR, GR<50LacsDeemed Profit>50% of GR, GR<50LacsDeemed Profit<50% of GR, GR<50LacsGR>50Lacs
Gross Receipts50,00,00050,00,00050,00,00050,00,00050,00,000
Expenses10,00,000Deemed Expenses=50% of Gross ReceiptsDeemed Expenses=30% of Gross ReceiptsDeemed Expenses=60% of Gross Receipts20,00,000
Profit 40,00,00025,00,00035,00,00020,00,00030,00,000
Is Deemed Profit Beneficial than Normal Profit YesYesTax Audit compulsory
44ADA not applicable.
Tax Audit compulsory
44ADA not applicable.
Calculation Of Presumptive Income under 44ADA

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 ProfitDeemed Profit(44ADA)
Gross Receipts50,00,00050,00,000
Expense10,00,000 (As per the Bank, Expense Bills, Payment Vouchers)Deemed Expenses 25,00,000 (50% of Gross Receipts)
Profit40,00,00025,00,000
44ADA misuseRs.40Lacs-25Lacs=Rs15Lacs(Misuse)
44ADA Misuse

Features of Section 44ADA for AY 2023-24 of Presumptive Taxation 44ADA Applicable only for Resident Individual, and Partnership Firm.

Tax Audit Applicable Us 44AB for Professionals
Tax Audit Applicable Us 44AB for Professionals

Table compiling all the details of all 3 Cases as follows,    

ParticularsPresumptive Taxation 44ADATax Audit for Professionals –44ABTax Audit for Professionals –44AB
 Case 1Case 2Case 3
Eligible AssesseeResident Individual, Partnership FirmResident Individual, Partnership FirmResident Individual, Partnership Firm
Gross Receipts from Professional IncomeUp to Rs.50LacsAbove Rs.50LacsUp to Rs.50Lacs
ProfitDeemed Profit=At least 50% or more of Gross Receipts.Actuals as per the Profit/Loss account. Profit=Gross Receipts-all Business ExpensesProfit=Any % less than 50% of Gross Receipts or in case of Loss.
Books of AccountsNot Required to Be maintainedYes, Compulsory to be maintained in both Tax Audit Cases
Advance TaxLast InstalmentAll 4 Installments
TDS FilingsN. AYes
Tax AuditN. AYes
5 Years restrictionYesN.A
Business ExpensesDisallowedAllowed
Salary & Interest to partners by a Partnership Firm subject to Sec40bNot Allowed as an Expense against Gross Income of the FirmAllowed as a Deduction as an Expense.
Deduction u/s 80YesYes
WDV of Depreciable AssetsDepreciation 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 Filing31St July 202331th October 2023
Revised Return31st December 2023 or completion of assessment(earlier)31st December 2023 or completion of assessment(earlier)
Updated ReturnWith additional tax @25% before 31st March 2025 or @50% before 31st March 2026With additional tax @25% before 31st March 2025 or @50% before 31st March 2026
Due Date for Furnishing Audit ReportNA
30th Sept 2023
Presumptive Taxation 44ADA vs Tax Audit u/s 44AB

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 4ITR 3, ITR 5, ITR 6, ITR 7
Eligible AssesseeResident Individual, HUF, Partnership Firm only.All Resident and Non-Resident.
Salary IncomeYesYes
Income From House Property from more than One House and/or Joint Owner of HouseNoYes
Income From Business & ProfessionOnly Presumptive Business Income allowed.All Business & Profession Income is allowed including Presumptive Income.
Income From Capital GainsNoYes
Income From Other SourcesYesYes
Director of the CompanyNoYes
Partner of the Partnership Firm receiving Salary & InterestNoYes
Investment in Unlisted Shares of a CompanyNoYes
Any Assets Located Outside IndiaNoYes
Income Taxable at Special RatesNoYes
Lottery Income or Income from Owning and Maintaining Horse RacesNoYes
Agricultural Income More than Rs.5,000NoYes
Any Brought Forward LossesNoYes
Income Earned Outside IndiaNoYes
Has Deferred Income Tax on ESOP from EmployerNoYes
Eligibility Conditions of 44ADA for ITR 4

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.

I Will be Writing Articles on all Income Tax Related Matters Based on My Work Experience of the Past 15 Years and My Ongoing Efforts to Help You Understand Various Tax Laws in the Simplest Possible Ways with Illustrations. So, Do Like, Share With Your Family, Friends, Colleagues, Subscribe to my Email List to Get Further Updates on my Blogs. 

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