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%.
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:
- Legal
- Medical
- Engineering
- Architecture
- Accountancy
- Technical Consultancy
- Interior Decoration
- 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.
From AY 2021-2022, the benefit of Section 44ADA is eligible only in the case of an assessee who is an:
- Individual; and
- Partnership firm other than a Limited Liability Partnership Firm.
To opt for Presumptive Taxation Scheme under Section 44ADA of Income Tax Act, the following two conditions should be satisfied:
- The gross receipts of the profession should be less than or equal to INR 75 lacs.
- 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.
| Particulars | Amount |
| Gross Receipts | 45,00,000 |
| Expenses | (25,00,000) |
| Net Profit | 20,00,000 |
Does not opt for Presumptive Taxation u/s 44ADA
- Pay tax on INR 20 Lakhs as per the slab rate.
- Maintain books of accounts as per Sec 44AA.
- Go for Tax Audit since the profit is less than 50% of gross receipts and total income is more than the basic exemption limit of INR 2.5 lacs.
Opts for Presumptive Taxation u/s 44ADA
| Particulars | Amount (INR) |
| Gross Receipts | 45,00,000 |
| Presumptive Income (50%) | 22,50,000 |
- Pay tax on INR 22.5 lacs as per slab rate.
- Do not maintain books of accounts as per Sec 44AA.
- Do not go for Tax Audit since the profit is at least 50% of gross receipts.
Income Tax on Presumptive Income under Section 44ADA
- Income Head and Tax Rate – Income under the presumptive taxation scheme is a business income classified under the head PGBP. Such income is taxable at slab rates as per the Income Tax Act.
- Claiming Expenses – Since the taxpayer reports a fixed percentage of gross receipts as income, they are not allowed to claim expenses. However, they can claim deductions under Chapter VI-A.
- Payment of Advance Tax – Taxpayers opting for a presumptive taxation scheme under Sec 44ADA should pay the entire amount of advance tax on or before 15th March of the financial year. If the advance tax payment is not done before the due date, interest under Section 234C is levied. The interest would be levied only if the tax liability exceeds INR 10,000.
- ITR Form – Taxpayers opting for presumptive taxation under Sec 44ADA should report such income as PGBP Income and file Form ITR-4 on the Income Tax Website. They must mention the specified Business and Profession Codes based on the nature of the profession. If the taxpayer has income from capital gains along with presumptive income, they should file Form ITR 3.
Tax Audit and Books of Accounts for Presumptive Income
- Books of Accounts under Sec 44AA – If a taxpayer opts for a presumptive taxation scheme u/s 44ADA and reports income at 50% or more of the gross receipts, they are not required to maintain books of accounts as per Sec 44AA.
- Applicability of Tax Audit – If a taxpayer declares income less than 50% of gross receipts and the total income exceeds INR 2,50,000 (basic exemption limit), they should maintain books of accounts and get the books of accounts audited under Section 44AB(d)
FAQs
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.
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.
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.
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?
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!!
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.
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!!
Thanks for your reply. I don’t earn any money in form of cash.
Hi @Ishwar,
Since you won’t be earning any money in form of cash you can opt for Sec 44ADA
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.
Cleartax has this to say.
They say I have to file it by 31st July 2024. What am I missing? Again thank you for your time!
@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.
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.
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.
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!
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 ?