Section 44ADA of the Income Tax Act benefits self-employed professionals whose annual income (total gross receipts) is less than Rs.50 lakhs. Engineers, lawyers, doctors, architects, accountants, interior designers, and technical consultants are all examples of occupations where such a person could work. Now you’re curious about the advantages.

What Makes Section 44ADA Of The Income Tax Act Unique? Let’s Have A Look.

Small taxpayers, on the other hand, are exempt from keeping account books under Section 44ADA and can calculate profits as a proportion of total sales for the fiscal year. The Act’s main goals are as follows:

  • Simplifying the tax system for self-employed individuals. 
  • Making it easier for self-employed professionals to comply with tax laws.
  • Making the business process easier.
  • Establishing parity between individuals who are covered by Section 44ADA and those who are not.

According to the Income Tax Act, the presumptive taxation plan is used to alleviate a person who is involved in a  business or profession from the tiresome task of keeping a regular book of accounts and the responsibility of auditing accounts. It does, in fact, allow you to calculate your taxes based on a projected income or profit.

Who Are The People, Covered By Section 44ADA?

What Is Section 44ADA Of The Income Tax Act

  •  Resident Individual
  •  Resident Hindu Undivided Family (HUF)

Is There A List Of Professionals Who Are Covered By Section 44ADA? 

Section 44AA(1) lists the following professions as being eligible:

  • Accountancy
  • Decoration of the interior
  • Consultant on technical issues
  • Engineering
  • Legal
  • Medical
  • Architecture
  • Any other professionals that the Central Board of Direct Tax has informed (CBDT). 

The Extract of Section 44ADA of the Income Tax Act

Special provision for computing earnings and gains of profession on a presumptive basis, as found in Section 44ADA of the Income Tax Act.

44ADA

(1) Notwithstanding anything in sections 28 to 43C, in the case of an assessee who is a resident of India and who is engaged in a profession referred to in sub-section (1) of section 44AA and whose total gross receipts do not exceed fifty lakh rupees in the previous year, a sum equal to fifty percent of the assessee’s total gross receipts in the previous year on account of such profession or, as the case may be, a sum higher than the afore. 

(2) For subsection (1), any deduction authorized under sections 30 to 38 is presumed to have been fully implemented, and no additional deduction under those sections is permitted.

(3) For each of the relevant assessment years, the written down value of any asset used for profession is presumed to have been computed as if the assessee had claimed and been awarded the depreciation deduction.

(4) Notwithstanding anything in the preceding provisions of this section, an assessee who claims that his profits and gains from the profession are less than those specified in sub-section (1) and whose total income exceeds the maximum amount not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under subsection (1) of section 44AA, have them audited.

How Do You Figure Out Your Taxable Income If You’re Using The 44ADA Presumptive Taxation Scheme?

If a professional opts for presumptive taxation under section 44ADA, his or her income is determined on a presumptive basis at 50% of the profession’s gross receipts rather than on a regular basis.

The person who chooses to tax under this provision can also disclose income that exceeds 50% of total gross revenues. Also, after declaring income at 50%, a person who uses the presumptive taxation scheme is not able to claim any additional deductions.

A professional, on the other hand, can claim deductions under several parts of Chapter VI-A. Though depreciation is not allowed as a distinct deduction when calculating income under section 44ADA, the write-down value (WDV) of any asset used in the business must be computed each financial year.

The written down value is the asset’s worth that includes the filing tax in the event that the assessee sells the asset late.

Payment Of Advance Tax For Specified Professions Under Section 44ADA:

If a person from a specific profession listed under section 44AA(1) opts for a presumptive taxation scheme under section 44ADA, he or she is required to pay the full amount of advance tax on or before March 15 of the PY.

If he or she fails to pay interest as required by sections 234B and 234C, he or she will be prosecuted.

Maintenance Of Books Of Accounts As Per Section 44ADA:

Section 44AA of the Income Tax Act deals with the maintaining of books of accounts by a person engaged in business or profession.

If a person chooses the presumptive taxation scheme under Section 44ADA and declares income at 50% of gross receipt, he is exempt from keeping books of account for a specified provision under Section 44AA.

 As a result, they are exempt from having their finances audited under Section 44AB.

Accounts Must Be Audited And Books Must Be Kept Up To Date Under The Following Conditions:

What Is Section 44ADA Of The Income Tax Act

If a person fits the following criteria, he or she is required to keep books of accounts and have them audited under Section 44AB.

  • Under Section 44ADA, declaring income from a profession at less than 50%. 
  • The assessee’s total income exceeds the exemption ceiling set by the CBDT.