No Tax Audit on showing Income @ 50% of Gross Receipts – Section 44ADA of Income tax Act, 1961
Under Income Tax, Section 44AD presumptive taxation scheme with low compliance benefits were only for traders. Due to this in the Budget 2016, the finance minister introduced the presumptive taxation scheme for specified professionals under Section 44ADA.
Section 44ADA applies on the assessee carrying specified profession, as per the provision the income of such profession is chargeable under the head Profit or Gain from Business and professional (PGBP) and on a presumptive basis.
Applicability of Section 44ADA
This section applies to an assessee who fulfils the following condition-
- An assessee can be Resident Individual or Resident HUF or Resident Partnership firm.
- An assessee must be engaged in a specified profession.
- The gross total receipts of the profession must not exceed Rs. 50 lakhs.
List of Specified Business under Section 44ADA
Persons engaged in any of the following professions:
- Technical consultancy
- Interior decoration
- Authorised Representatives – a person who represents someone before a tribunal or any legal authority in exchange for a fee. It does not include an employee of the person or a person who is carrying on the profession of accountancy
- Film Artists – cameraman, producer, editor, dance director, actor, director, music director, art director, lyricist, story writer, screenplay or dialogue writer, singer, and costume designers.
- Certain sports-related persons
- Company Secretaries
- Information technology
- Any other Profession that may be notified by CBDT
Amount Deemed as PGBP Income
As per the provisions of this section, PGBP income shall be deemed to be 50% of gross receipt or any other higher amount.
Example : Rahul is a freelance designer. His total receipts for FY 2019-20 is Rs 40 lakh. The total expenses are Rs 15 lakhs that includes a subscription for designing software, salary, rent, electricity, travelling, etc.
Calculation of Income under Section 44ADA
|Presumptive Income @ 50%||20,00,000|
Read Also: 15 Reasons you may get Income Tax Notice
Mrs. Shewta is an advocate. Gross Receipts of the profession for the year ended 31st March 2021 are 46lakhs. The firm has paid 32 lakhs toward expenses incurred during the year. Analyze the situation
Mrs. Shewta has two options
First : To opt for section 44ADA and declared business income @ 50% of Rs 46 lakhs = 23 lakhs
Second: Not to opt for the section 44ADA and declared income net profit (Rs 46 lakh- Rs 32 lakh) = 14 lakhs
But in option two she needs to keep proper books accounts and get them audited too.
Important Points under Section 44ADA
1. Any other Expenses are Not Allowed to be deducted including remuneration paid to partners by partnership firm or addition depreciation or unabsorbed depreciation.
2. Deduction of chapter VI (section 80C to 80U) is allowed as a deduction
3. The assessee is required to discharge is advance tax liability on or before 15th march of relevant previous year. Read more: Advance Tax liability : Calculation, Due dates, Interest
4. He can file Income tax return (ITR) in form ITR-4.
Applicability of Section 44AB and Section 44AA
If an assessee is declaring his income as per section 44ADA the requirement relating to maintenance of books of accounts and audit of books of account is not applied.
The assessee needs to maintain proper books of accounts u/s 44AA and get them audited u/s 44AB, if-
1. Claims profits or gains lower than the prescribed limit under the presumptive taxation scheme
2. Income exceeds the maximum amount not chargeable to income tax (2.5Lakh /3Lakh /5Lakh ).
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The author of the above article is Aditya Kishore.
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