PROSPERR.IO

Section 44ADA of the Income-tax Act, 1961, offers a simplified presumptive taxation scheme for various professionals, significantly easing their compliance burdens. Here’s an in-depth look at the key provisions and practical implications for the Assessment Year (AY) 2024–25, including the amendments introduced by the Finance Act, 2023.

Key Provisions of Section 44ADA

Eligibility:

• It applies to individuals and partnership firms, excluding limited liability partnerships (LLPs), resident in India.
• Covers professions such as legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, or any other profession notified by the Board.

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Conditions:

• Total gross receipts should not exceed ₹50 lakh in a financial year.
• However, if the amount or aggregate of amounts received in cash during the previous year does not exceed 5% of the total gross receipts, the threshold is increased to ₹75 lakh. Non-account payee cheques and bank drafts are considered cash for this calculation.

Presumptive Income:

• 50% of the total gross receipts, or a higher amount claimed by the assessee, is deemed income chargeable to tax under "Profits and gains of business or profession.".

Deductions:

• Deductions that are otherwise allowable for computing income under sections 30 to 38 are deemed to have been allowed and cannot be claimed separately.
• The written down value (WDV) of any asset used in the profession is calculated as if the assessee had claimed and been allowed the deduction for depreciation for each relevant assessment year.

Maintenance of Books and Audit:

• The presumptive taxation provisions under Section 44ADA are not applicable in a case where it is claimed that the total income is less than 50% of the gross receipts or that the gross receipts exceed the limit prescribed. In such a case, the provisions of the maintenance of books of account and other documents under Section 44AA and the audit under Section 44A shall be applicable.

Practical Implications

Simplified Compliance:

• Professionals can avoid detailed bookkeeping and auditing requirements by opting for presumptive taxation under Section 44ADA, provided they meet the conditions.

Increased Threshold for Non-Cash Receipts:

• The amendment incentivizes digital and banking transactions by increasing the gross receipts threshold to ₹75 lakh for professionals who receive less than 5% of their receipts in cash.

Example Scenario

For a medical practitioner with gross receipts of ₹60 lakh in AY 2024-25, if less than 5% of these receipts are in cash, they can declare 50% of ₹60 lakh (i.e., ₹30 lakh) as their presumptive income under Section 44ADA. This allows them to avoid maintaining detailed books of accounts or undergoing an audit.

Conclusion

Section 44ADA provides a structured taxation method for small professionals, reducing compliance burdens and encouraging digital transactions, however, the provisions of Section 44ADA are not applicable to an individual, who renders such services as an employee. This scheme is particularly advantageous for those looking to simplify their tax processes while adhering to modern financial practices. Click here to book your FREE tax assessment call

Disclaimer- The article is only for educational purposes and is not to be construed as tax advice. The relevant provisions of the Income-tax Act may be referred to, for complete understanding.