Section 44ADA of the Income Tax Act was introduced by the Finance Act, 2016, and came into effect from April 1, 2017. This section provides a presumptive taxation scheme for certain professionals who are engaged in specified professions. In this blog, we will discuss the provisions of Section 44ADA of the Income Tax Act for the Assessment Year 2018-19, with proper headings.
Applicability of Section 44ADA
Section 44ADA is applicable to individuals who are residents of India and are engaged in specified professions. The following professions are covered under this section:
- Legal
- Medical
- Engineering or architectural
- Accountancy
- Technical consultancy
- Interior decoration
- Presumptive Taxation Scheme
Under the presumptive taxation scheme, professionals covered under Section 44ADA are required to pay tax on their professional income at a prescribed rate, irrespective of their actual income. The prescribed rate is 50% of the gross receipts of the profession for the financial year.
Conditions for Availing Presumptive Taxation Scheme
To avail the benefits of the presumptive taxation scheme under Section 44ADA, the following conditions must be met:
- The professional must be a resident of India.
- The professional must be engaged in any of the specified professions mentioned in the section.
- The professional must have total gross receipts of up to Rs. 50 lakhs in a financial year.
- The professional must file his/her tax return in ITR-4 Form.
Advantages of Presumptive Taxation Scheme
The presumptive taxation scheme under Section 44ADA has several advantages for professionals. These include:
Simplified tax compliance: Professionals covered under this section are not required to maintain detailed books of accounts. They can pay tax on their gross receipts at the prescribed rate and file their tax return in ITR-4 Form.
Lower tax liability: As the tax is calculated on the basis of gross receipts, the tax liability of professionals is likely to be lower than what they would have to pay under the regular taxation scheme.
No audit requirement: Professionals covered under this section are not required to undergo tax audit, even if their total income exceeds the threshold limit for tax audit.
Calculation of Tax Liability
The tax liability of professionals covered under Section 44ADA is calculated on the basis of their gross receipts. The gross receipts are the total amount of professional income received during the financial year. The prescribed rate of tax is 50% of the gross receipts. Therefore, the tax liability can be calculated as follows:
Tax Liability = 50% of Gross Receipts
For example, if a professional’s gross receipts for the financial year are Rs. 40 lakhs, then his/her tax liability under Section 44ADA would be Rs. 20 lakhs (50% of Rs. 40 lakhs).
Exclusion of Certain Income
It is important to note that Section 44ADA applies only to the income earned from the specified profession. Any income earned from other sources, such as rent or capital gains, cannot be included in the gross receipts for the purpose of calculating tax liability under this section.
Disqualification from Presumptive Taxation Scheme
Professionals who do not meet the conditions for availing the benefits of Section 44ADA may be disqualified from the presumptive taxation scheme. They will then have to file their tax return under the regular taxation scheme and maintain detailed books of accounts.
Filing of Tax Return
Professionals covered under Section 44ADA are required to file their tax return in ITR-4 Form. This form has been specifically designed for individuals who have opted for the presumptive taxation scheme. The form requires basic information on the professional’s gross receipts, expenses and tax liability.
Conclusion
Section 44ADA of the Income Tax Act provides a simple and beneficial presumptive taxation scheme for professionals engaged in specified professions. It offers various advantages to such professionals and simplifies their tax compliance requirements. However, it is important to ensure that all the conditions for availing the benefits of this section are met before opting for the scheme.
Read more useful content:
- section 145 of income tax act
- section 10e of income tax act
- section 9 of the income tax act
- section 94b of income tax act
- section 206aa of income tax act
Frequently Asked Questions (FAQs)
Who is eligible to opt for the presumptive taxation scheme under Section 44ADA?
Individuals who are residents of India and engaged in specified professions, such as legal, medical, engineering, accountancy, technical consultancy, or interior decoration, are eligible to opt for the presumptive taxation scheme under Section 44ADA.
What is the prescribed rate of tax under Section 44ADA?
The prescribed rate of tax under Section 44ADA is 50% of the gross receipts of the profession for the financial year.
What is the maximum limit of gross receipts for availing the benefits of Section 44ADA?
The maximum limit of gross receipts for availing the benefits of Section 44ADA is Rs. 50 lakhs in a financial year.
Can professionals covered under Section 44ADA claim deductions for expenses incurred in the course of their profession?
No, professionals covered under Section 44ADA are not allowed to claim any deductions for expenses incurred in the course of their profession. The tax liability is calculated on the basis of gross receipts.
Is tax audit required for professionals covered under Section 44ADA?
No, tax audit is not required for professionals covered under Section 44ADA, even if their total income exceeds the threshold limit for tax audit.
Can professionals switch between the presumptive taxation scheme and the regular taxation scheme?
Yes, professionals can switch between the presumptive taxation scheme and the regular taxation scheme from one financial year to another.
Can professionals engaged in other professions, apart from the specified professions, opt for the presumptive taxation scheme under Section 44ADA?
No, only professionals engaged in specified professions, such as legal, medical, engineering, accountancy, technical consultancy, or interior decoration, can opt for the presumptive taxation scheme under Section 44ADA.
Is there any penalty for not complying with the provisions of Section 44ADA?
Yes, if a professional covered under Section 44ADA does not comply with the provisions of the section, he/she may be subject to penalty under the Income Tax Act.
Can professionals covered under Section 44ADA carry forward losses incurred in their profession?
No, professionals covered under Section 44ADA cannot carry forward losses incurred in their profession to subsequent financial years.
Can professionals covered under Section 44ADA claim input tax credit for GST paid on their expenses?
Yes, professionals covered under Section 44ADA can claim input tax credit for GST paid on their expenses, even though they cannot claim deductions for those expenses while calculating their tax liability.
