From Financial year (FY) 2017-18, prescribed professionals can also avail the benefit of presumptive taxation (income) through section 44ADA.
Earlier it was only available to businesses under section 44AD.
Section 44ADA: Presumptive Taxation for Professional Income
A resident person who is engaged in a prescribed profession with a gross receipt up to Rs. 50 lakh in a financial year can consider his taxable professional income (PGBP) as 50% of the gross receipt.
This 50% is the minimum taxable limit and declaration of professional income below this limit will cause a taxpayer to maintain proper books of accounts in order to justify his low income. He would also be required to file tax audit if his total income exceeds the maximum amount not chargeable to income-tax [In AY 2019-20 for normal taxpayer it is Rs.2.5 lakh]
Income at a higher rate, i.e. higher than 50% can be declared if the actual income is higher than 50%.
This scheme also allows taxpayers to do their profession without maintaining books of account.
No other deductions are allowed from the computed income, as we can see here that after applying the rate we get the net taxable professional income (PGBP). However, deduction of chapter VI-A is available.
Who is eligible for section 44ADA?
A resident person who is engaged in a prescribed profession with a gross receipt up to Rs. 50 lakh in a financial year is eligible for this scheme.
Let’s define them one by one!
A. Resident Person includes
- Resident Individual
- Resident Hindu Undivided Family (HUF)
- Resident Firm
- Resident Companies
- Resident Association of Person (AOP)
- Resident Body of Individual (BOI)
B. Prescribed Profession includes
- Legal [Advocates]
- Medical [Doctor, physiotherapist, Nurse]
- Architectural profession
- The profession of accountancy [Chartered Accountants (CA)]
- Technical consultancy [DNS, Networking, Unix, Oracle, SQL Scripting etc]
- Interior decoration
- Any other profession to be notified by CBDT
Tax Audit [u/s 44AB(d)]
Tax Audit is required when
- A taxpayer claims his professional Income (PGBP) below 50% of gross receipt while filling return under this scheme, AND
- his income exceeds the maximum amount which is not chargeable to income-tax in a financial year
Unlike section 44AD, professionals under section 44ADA can any time either OPTs-IN or OPTs-OUT of the scheme without the requirement to file tax audit even if their total income exceeds the maximum amount not chargeable to income tax.
Other Important Points Under section 44ADA
- Expenses relating to PGBP will not be allowed. [section 30-38 of Income Tax]
- Although depreciation expense is not allowed, the fixed asset will get depreciated normally as if depreciation has actually been allowed.
- Assessee under presumptive taxation is also liable to pay advance tax. They can pay 100% of advance tax by 15th March of the financial year.
- Assessee under presumptive taxation can take the deduction of Chapter VI-A.