Section 44ADA: Presumptive Taxation for Profession

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Sakshi Shah

Business and Profession Income
Presumptive Taxation Scheme
Section 44ADA
Last updated on November 30th, 2023

The presumptive taxation scheme for professionals is designed to ease the burden of small taxpayers, sparing them from the intricate task of maintaining detailed books of account. This scheme allows taxpayers to declare their income at a specified rate, enabling them to take advantage of the provisions outlined in section 44ADA of the Income Tax Act.

What is Section 44ADA of the Income Tax Act?

Under Budget 2016, the finance minister introduced the presumptive taxation scheme for specified professionals under Section 44ADA of the Income Tax Act. FY 2016-17 onwards, a professional with gross receipts up to INR 50 lacs can take the benefit of presumptive taxation under Section 44ADA. Budget 2023 increased the threshold u/s 44ADA to Rs 75 lakhs from Rs 50 lakhs, provided the cash receipts should be less than 5%.

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Section 44ADA: Eligibility

A person resident in India engaged in any of the following professions can take advantage of the Presumptive Taxation Scheme under Section 44ADA:

  1. Legal
  2. Medical
  3. Engineering
  4. Architecture
  5. Accountancy
  6. Technical Consultancy
  7. Interior Decoration
  8. Any other specified profession that CBDT notified
    • Film Artists – cameraman, producer, editor, dance director, actor, director, music director, art director, lyricist, story writer, screenplay or dialogue writer, singer, and costume designers.
    • 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.
The Budget 2023 revised presumptive taxation limits under Sec 44ADA for professionals upto INR 75 lakhs, provided the cash receipts should be less than 5%.
Tip
The Budget 2023 revised presumptive taxation limits under Sec 44ADA for professionals upto INR 75 lakhs, provided the cash receipts should be less than 5%.

From AY 2021-2022, the benefit of Section 44ADA is eligible only in the case of an assessee who is an:

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To opt for Presumptive Taxation Scheme under Section 44ADA of Income Tax Act, the following two conditions should be satisfied:

  1. The gross receipts of the profession should be less than or equal to INR 75 lacs.
  2. The taxpayer should report 50% or more of the gross receipts as income in the ITR.

Example

Arjun is a freelance designer. His total receipts for FY 2022-23 are 45 lacs. The total expenses are INR 25 lacs which includes a subscription for designing software, salary, rent, electricity, travelling, etc.

ParticularsAmount
Gross Receipts45,00,000
Expenses(25,00,000)
Net Profit20,00,000

Does not opt for Presumptive Taxation u/s 44ADA

Opts for Presumptive Taxation u/s 44ADA

Particulars Amount (INR)
Gross Receipts 45,00,000
Presumptive Income (50%) 22,50,000

Income Tax on Presumptive Income under Section 44ADA

Tax Audit and Books of Accounts for Presumptive Income

Check Tax Audit Applicability u/s 44AB
Check Income Tax Audit applicability u/s 44AB to file Tax Audit Report Form 3CB - 3CD with your Income Tax Return.
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Check Income Tax Audit applicability u/s 44AB to file Tax Audit Report Form 3CB - 3CD with your Income Tax Return.
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FAQs

I am a freelancer and I opted for Presumptive Scheme u/s 44ADA. Can I claim expenses like internet, rent, travelling, etc?

A freelancer who has opted for Presumptive Scheme u/s 44ADA should report 50% or more of gross receipts as income. Thus, the freelancer cannot claim any further expenses. However, they can claim Chapter VI-A deductions like LIC premium, mediclaim premium, donations, etc.

Do I need to pay advance tax if I opt for Presumptive Taxation Scheme under Section 44ADA?

Yes. If the total tax liability for a financial year exceeds INR 10,000 you must pay advance tax. If you have opted for a presumptive taxation scheme u/s 44AD or 44ADA, you are required to pay advance tax on or before 15th March instead of 4 instalments in other cases.

Do I need to maintain books of accounts if I opt for Presumptive Taxation Scheme under Section 44ADA?

Taxpayers opting for Presumptive Taxation, are not required to maintain books of accounts as per Section 44AA. They are also not liable for Tax Audit as per Section 44AB.

Got Questions? Ask Away!

  1. I am a practicing doctor, majority of my receipts are in cash but my gross receipts are less than Rs. 50 lakhs. Can I opt this presumptive taxation scheme?

  2. Hi @Swapnil_Agarwal,

    The condition of cash receipts not exceeding 5% of the gross receipts is applicable only on the enhanced limits of ₹75 Lakhs, so you can opt for presumptive taxation scheme even if your cash receipts exceeds 5% of the gross receipts with total receipts not exceeding ₹50 lakhs.

    Hope this helps!!

  3. Hello Niyati, I am working as freelancer for a foreign client. My income would be 60L approximately. Since the income exceeds the limit of 50L but less than 75L can I still opt for sec 44ADA? I have no other source of income.

  4. Hi @Ishwar,

    Yes, you can opt for Sec 44ADA as your income is less than ₹75 Lakhs. The enhanced limits are applicable for the FY 2023-24. Also you will have to check that your cash receipts don’t exceed 5% of the gross income from Freelancing.

    Hope this helps!!

  5. Thanks for your reply. I don’t earn any money in form of cash.

  6. Hi @Ishwar,

    Since you won’t be earning any money in form of cash you can opt for Sec 44ADA

  7. Hi @CA_Niyati_Mistry. Thank you so much for your time.

    I successfully filed my taxes under 44ADA for AY 22-23. I want to file my tax for AY23-24 now. I have two major questions.

    1. For AY23-25, do I have to pay advance tax (100% of my total tax) by 15th March 2023 or 2024? Which year?
    2. If I have to pay it by 15th March 2023, I should go to the income tax website and pay advance tax for AY23-24. But I distinctly remember that for AY22-23, I could file my tax from the normal File Income Tax section where I could select section ADA and fill my information and the website would calculate my tax for me. But when opting for advance tax this year I do not see any such options.

    Cleartax has this to say.

    Further, anyone opting for this scheme is not bound by the mandate of maintaining books of accounts too. While he is also liable to file his return by 31 July of the assessment year, he must file his return in ITR 4.

    They say I have to file it by 31st July 2024. What am I missing? Again thank you for your time!

  8. @CA_Niyati_Mistry I have a thread about this topic here now.

    On further research I realised I misunderstood quite a few things.

    Please correct me if I’m wrong!

    Income tax filing and Advance payment are completely different things. You pay advance tax before 15th March of the financial year and then file your income tax returns in the Assessment year.

    Okay it makes sense now. I will make the following assumptions for my timeline. Please let me know if I am correct.

    1. For my FY22-23 income, I should go to the income tax website and pay my estimated advanced tax for the income I earned between 1st April 2022 and 31st March 2023 under AY23-24. Because I’m eligible for 44ADA, I have the benefit of paying it all in one go before March 15th 2023 instead of paying it in instalments.

    2. Then before 31st July 2023, I will have to file my income tax return. Neutral case - I won’t have to pay anything when filing my ITR because my estimated advanced tax payment was correct. Worst case - I have to file any difference and pay some more. Best case, my advance tax payment was more and I get a refund.

    Are the dates mentioned correct? Are my assumptions right? Thanks again for your time.

  9. Hi @Vivek_Negi,

    Yes, the dates mentioned and the assumptions are correct. Income Tax Return filing and Advance Tax payment are two different concepts. While you file ITR after the PY 2022-23 ends till 31st July, Advance tax is the tax liability that you pay before the year ends. In case of 44ADA only one installment of Advance tax is applicable i.e 15th March where you pay the entire estimated tax liability in one go.

    At the time of return filing the income will be calculated again and thus tax liability might differ from what you had determined earlier at the time of Advance tax payment. In case you have paid excess Advance Tax you will receive refund and in case of deficiency you will have to pay tax along with interest.

    Hope this clarifies!

  10. so . whether i opt for presumptive or non-presumptive ; advance tax has to be paid as pet the % slabs and as per the dates ! am i right ?

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