Section 44ADA – Presumptive Tax Scheme for professionals

From FY 2016-17, a programme for presumptive taxation was implemented under section 44ADA. 

For small professions, Section 44ADA provides a simplified form of taxation. Profits and income deriving from professions listed under Section 44AA(1) of the Income Tax Act of 1961 are subject to presumptive taxation under Section 44ADA. 

The benefit of section 44ADA can be taken only by those specified professionals whose annual gross receipts are under Rs 50 lakh. 

Union Budget 2021 Outcome 

The threshold limit of tax audit for business is extended from Rs. 5 Crores to Rs. 10 crores w.e.f. A.Y.2021-22 where digital transactions are not less than 95% of total transactions. 

Scope and purposes of Section 44ADA 

In certain circumstances, Section 44ADA is an unique provision for estimating the profits and gains of small professions. 

Section 44ADA was enacted to broaden the scope of the streamlined presumptive taxation regime to include certain professionals. Previously, the presumptive tax method was only applied to small businesses. 

The presumptive taxation approach decreases compliance costs for small businesses and makes doing business easier. Profits are presumed to be 50% of gross receipts under the presumptive taxation regime. 

Assesses eligible for the Section 44ADA 

The following Indian assesses are eligible: Individuals Hindu undivided families (HUFs) Partnership firms (note that limited liability partnerships are not eligible) 

Union Budget 2021 Outcome: The presumptive taxation scheme under section 44ADA was previously applied to all the resident professionals referred to in section 44AA. Now onwards, it applies only to the resident individual, Hindu Undivided Family (HUF) or a partnership firm, other than LLP. 

Eligible professionals under Section 44ADA 

• Professionals engaged in the following professions are eligible: 

• Interior decorations 

• Technical consulting 

• Engineering 

• Accounting 

• Legal 

• Medical 

• Architecture 

• Other professionals, as mentioned below; 

• Movie artists includes a producer, editor, actor, director, music director, art director, dance director, cameraman, singer, lyricist, story writer, screenplay or dialogue writer and costume designers 

Authorised representative means a person who represents another person for a fee before a tribunal or any authority constituted under any law. It does not include an employee of the person so represented or a person who is carrying on the profession of accountancy 

Any other notified professionals 

What is the presumptive income offered? 

Higher of the following is offered as presumptive income: 50% of the total receipts from the profession Income offered by the assessee from the profession.