Section 44ADA - Presumptive Taxation for Profession

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Sakshi Shah

Business and Profession Income
Presumptive Taxation Scheme
Section 44ADA

To provide relief to small taxpayers from the tedious task of maintaining books of accounts and getting books of accounts audited, the CBDT had introduced the Presumptive Taxation Scheme. Under Budget 2016, the finance minister introduced the presumptive taxation scheme for specified professionals under Section 44ADA. FY 2016-17 onwards, a professional with gross receipts up to INR 50 lacs can take the benefit of presumptive taxation under Section 44ADA.

ITR for Professions u/s 44ADA (Presumptive Scheme)
CA Assisted ITR Plan for Individuals / HUFs with professional income covered under Presumptive Taxation Scheme
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ITR for Professions u/s 44ADA (Presumptive Scheme)
CA Assisted ITR Plan for Individuals / HUFs with professional income covered under Presumptive Taxation Scheme
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Who can opt for Presumptive Taxation under Section 44ADA?

A resident taxpayer 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.

Calculation of Presumptive Income under Section 44ADA of Income Tax

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

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

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Example

Arjun is a freelance designer. His total receipts for FY 2019-20 is 45 lacs. The total expenses are INR 25 lacs that 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

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 under Section 44ADA

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 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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Section 44ADA of Income Tax – 5 Year Rule

As per this rule, if a taxpayer opts for the presumptive taxation scheme in a financial year, he/she should opt for it for the next 5 financial years continuously. However, if the taxpayer fails to do so, he/she would not be able to take the benefit of presumptive taxation scheme for the next 5 financial years. For eg: A professional opts for Sec 44ADA for AY 2018-19 and AY 2019-20. However, for AY 2020-21, he does not opt for the presumptive taxation scheme. In this case, he will not be eligible to claim the benefit of the presumptive taxation scheme for the next five AYs, i.e. from AY 2021-22 to AY 2025-26.


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. There is an option to declared a fixed percentage of receipts as profit and not maintain any books of accounts. Thus, the freelancer cannot claim any further expenses. However, he/she 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 presumptive taxation scheme u/s 44AD or 44ADA, you are required to pay advance tax on or before 15th March instead of 4 installments in other cases. However, if you fail to pay advance tax by 15th March of the financial year, interest is Sec 234B and Sec 234C is required to be paid.

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

A person engaged in specified profession having gross receipts up to INR 50 lacs has the option to opt for Presumptive Taxation Scheme under Sec 44ADA. He/she can report 50% or more of gross receipts as income and pay tax on it. If they opt for Presumptive Taxation, they are not required to maintain books of accounts as per Section 44AA. They are also not liable for Tax Audit as per Section 44AB.

  • Abhishek Tiwari says:

    Hello,
    I have two questions
    1.If the tax is filed under 44ADA,GST registration is required?
    A. In case total income(including half as expense)is more than 20Lakh
    B. In case total income(including half as expense)is less than 20 Lakh
    Could you please answer in both the cases..
    Thanks
    Abhishek

    • Sakshi Shah says:

      Hello Abhishek,
      Registration under GST is mandatory if you exceed the threshold limit of turnover prescribed by your State. GST Registration is not dependent on reporting income u/s 44ADA. If the aggregate turnover i.e. gross receipts (without considering expenses) exceed INR 20 lacs, GST Registration is mandatory. If the gross receipts (without considering expenses) is less than INR 20 lacs, GST Registration is not mandatory. You can read more about it here – Calculate Aggregate Turnover under GST

  • Kailash Chand Aggarwal says:

    I want to opt for 44ADA as I am a retired Government Servant and presently working as Consultant (Secretarial Services)in a Government Organization on contract basis. Please let me know as to under which category my profession falls. Basically, my job is Private Secretary and designation is Consultant (Secretarial Services).

    • Maharshi Shah says:

      Hi, while selecting the correct professional code one needs to make sure that it is similar to his/her profession. In your case, you can select code 16018 i.e, Secretarial Services while opting for 44ADA.

  • N K Job says:

    Hello & Namaste
    In Form ITR-4 Sugam, I find that there is a Column B2(iv)a for the purpose of entering Standard Deduction admissible under Section 16(ia) indicated in Part B of Form 16. I am a Central Govt Pensioner and doing Technical Consultancy in one of the Central Ministries. Form 16 is issued to me by my Bank with regard to pension drawn for the whole year and it also contains Part B in which Standard Deduction has been mentioned as Rs.50,000/-. But when I try to fill up the relevant Column in ITR4, I find that the reply box (column) is in grey mode and I cannot enter any figure with regard to Standard Deduction. Am I not entitled to claim Standard Deduction? My total income for the FY 2019-20 is Rs.6,26,227 and the Presumptive Income calculated is 50%, i.e. 3,13,114, which has been duly accounted for and reflected in the saved draft of my return. May I request you to kindly clarify the position…

    • Anushka Shah says:

      Hey,
      If you have received Form 16 from your employer, it is a Salary Income. So, it must be reported in Schedule Salary and standard deduction of INR 50,000 will also be calculated on such salary income. Since it is your Salary Income, it cannot be reported as Presumptive Income. Standard Deduction is available on Salary Income and not Income under Presumptive Taxation Scheme.

  • N K Job says:

    Thanks. In my case Salary Income means my Pension. Form 16 is issued to me by my employer (meaning my Pension drawing Bank). In Form 26AS of TRACES the “Total Amount Credited” on account of Salary Income is shown as Rs.6,69,859. In Form 16 (Part A) issued by Bank “Amount Paid/Credited” is shown as Rs.6,69,859 and in Form 16(Part B) the “Gross Total Income”, after adjusting Standard Deduction of Rs. 50000, is Rs. 6,19,859/-. I presume that I can very well mention Rs. 6,19,659 as Salary Income in the “Income Details” Schedule/page while filling up Tax Return (ITR-4 Sugam).

  • M S Vats says:

    Hi ! I am a retired government servant drawing pension. I was engaged in civil services. I am now engaged as a legal and administrative consultant in an engineering college. Can I avail section 144Ada benefits on my salary from the college? Also which professional code should I be using?

    • Anushka Shah says:

      Hey,
      Pension income should be reported under the head Salary Income. You can opt for Section 44ADA for the consulting services if the gross receipts in the financial year do not exceed INR 50 lacs. You can use the profession code as : 16013 – Business and management consultancy activities.

  • dr.s.k.Ramavat says:

    Iam pensioner and i am getting proffesional servise fees. how to aply it law 44 ADA?

    • Anushka Shah says:

      Hey Dr.S.K Ramavat,
      Pension income should be reported under the head Salary Income. If you are receiving it in the form of fee for professional services, you can opt for Section 44ADA if the gross receipts in the financial year do not exceed INR 50 lacs. If you opt for Section 44ADA, you must report atleast 50% of the gross receipts as taxable income and books of accounts are not required to be maintained. You must file ITR-4.

  • Sam says:

    Hello sir i am a youtuber and i receive around 4.2lakhs year, as it is mendetory to file tax on income above 2.5 lakhs and pay advance tax if tax liability is more than 10000. But they also says you dont have to pay tax under 5 lakhs income. So my confusions are:

    Do i need to pay advance tax before filing itr?
    Which itr to file ITR 1, 2, 3?
    Should i opt for 44ADA?
    Can i deduct my expenses?

    i know i am asking too many questions but i am really confused.
    I also have some shares in zerodha, and mutual fund bought from incomes.

    • Anushka Shah says:

      Hey Sam,
      1. Read more about Advance Tax on our Learn Center.
      2. Check out our tool to determine which ITR to file
      3. As per Section 44ADA under Income Tax Act, since the taxpayer reports a fixed percentage of gross receipts as the income, he/she is not allowed to claim expenses. However, they can claim deductions under Chapter VI-A.

  • Gajendra Malav says:

    I’m a medical professional with gross receipts of 20 lakhs a year. My expenses related to the profession are 2 lakhs, personal expenses are 4 lakhs and investments are 12 lakhs in a year. What will be my taxable income under presumptive taxation scheme? 50% of 20 lakhs or 90% of 20 lakhs bcoz of professional expenses being only 2 lakhs.

    • Anushka Shah says:

      Hi Malav,
      As per Section 44ADA of Income Tax Act, the taxpayer should report 50% or more of the gross receipts as income in the ITR. Hence you can report either 50% or 90% as per your current situation.

  • N K Job says:

    I have a point to ask. I have already e-filed ITR for FY 2018-19; verification and processing also complete. I had to pay some more tax (INR 9,200) in addition to the tax of INR 84,210 already paid earlier which I duly remitted to the IT Department.

    Now I came to know that in case a person want to make a change or correction in his original return filed for FY19, he can file a revised return upto 30.09.2020 (earlier the date was extended to 30.06.2020 and again to 31.07.2020). In my return for FY19, I had not utilized the benefit of Section-44ADA as I was not aware of the same. During that period apart from Pension I had professional income and I counted it fully as salary income. If I am eligible to file revised return, i.e. ITR-4 in place of ITR-1 used earlier, it is sure that I will get some refund though I may have to remit penalty of INR 10,000 for late filing of ITR. Can I now submit a fresh return (ITR-4) in place of return (ITR-1) already filed and processed? Awaiting your early advice.

    • Anushka Shah says:

      Hey,
      The due date for filing returns for FY 18-19 has been further extended to November 30, 2020. Hence, yes you can file a revised return and opt for presumptive taxation scheme under sec 44ADA. For more details read about Revised Return on our Learn Center.

  • Prasad says:

    In my view, you can file ITR4 but mention it as revision submission, but not as original. Based on PAN your earlier ITR1 details would already be there in the system.

    But please be aware that if you opt for Presumptive tax u/s 44ADA, you have to continue the same option for 5 years continuously. You can’t switch to other income computing method for 5 years after first exercise of option.

  • Ananth Kulkarni says:

    Whether can we claim basic exemption if we opt for 44ADA? Suppose gross receipts are 10L p.a, then can I claim 50% under 44ADA and I’ll claim 2.5L basic exemption and for Balance I’ll claim relief. So my net tax paid will be 0…??

    • Anushka Shah says:

      Hey Ananth,
      You can claim basic exemption as the same is applicable on income from all sources. Further, if your total income is up to INR 5 lakh, then you are eligibile for a rebate of INR 12,500 under sec 87A.

  • Prasad says:

    Hi, I have a question –
    Here is a retired bank employee drawing pension from his employer. He has contribution to superannuation fund in LIC and receives monthly annuity. From this year he started providing consultancy to IT companies and draws a fixed amount on monthly basis. He has income from his flat owned at his native place. He derives some capital gains on equity shares.
    Since professional income is higher, he wants to opt for section 44ADA. What is the right ITR form for him? If he has to use ITR3, is he required to prepare all A&L, P&L and Trading account details etc?

    • Anushka Shah says:

      Hey Prasad,
      If a taxpayer opts for a presumptive taxation scheme u/s 44ADA and reports income at 50% or more of the gross receipts under ITR-3 , he/she is not required to maintain books of accounts as per Sec 44AA.
      Check out our tool to Determine which ITR to file

  • SS says:

    Hello,

    If I’m receiving income from:
    1) Rent; and
    2) Profession (for which I will do the 44ADA)

    How many times do I have to pay advance tax? 4 times? Or once (as per the 44ADA guideline)?

    • Anushka Shah says:

      Hi,
      Under the presumptive scheme under section 44ADA, you have to pay the whole of advance tax liability in one instalment on or before 15 March.

  • Sha says:

    Suppose we have gross receipts of 30 lakhs every year and we show 50% profit so pay tax at 15 lacs. I have nominal expenses of around 6 lacs from 15 lacs so what can we do with rest of 9 lacs? Can we invest it anywhere or do we have to withdraw cash to show expenses?

    • Maharshi Shah says:

      If you’re opting for presumptive taxation scheme under Section 44ADA, you’re not required to maintain books of accounts. You must report taxable income as 50% of gross receipts or actual profit whichever is higher.
      If you want to claim expenses, you are required to maintain books of accounts. You must prepare financial statements and file ITR-3.

  • KULWANT SINGH says:

    I AM GETTING PENSION OF 14 LAKHS WHICH IS TAX FREE DUE TO DISABILITY, AND CONSULTANCY FEE OF 16 LAKHS PER YEAR

    CAN I APPLY FORSEC 44ADA AND UNDER WHICH CODE

  • Ajay Patel says:

    Hello,
    I am a Partner in LLP firm and getting remuneration from it from 2019-20.
    Alongwith I have received around 28 Lakhs Rupees in USD into my Saving Account for Software related service rendered to my USA clients. Also, I have profit less than 50% of the receipt.
    I have previously filed ITR 4 under 44AD.
    In such case, Is it complusory to adopt 44ADA for 2019-20? Or I can also file return under 44AD…

    • Maharshi Shah says:

      Section 44AD is presumptive taxation for business and Section 44ADA is presumptive taxation for profession. Since you’re providing services, Section 44ADA is applicable. You can opt for either of the following options:

      1. Opt for Section 44ADA – Report 50% or more of the gross receipts as taxable income and file ITR-4
      2. Do not opt for Section 44ADA – Report actual profit or loss as taxable income, prepare financial statements and file ITR-3

  • Veejay says:

    I earn Salary of 75Lakh, Can i restructure my salary to reap the benefit of 44ADA, How should i structure. Please suggest

    • Maharshi - Quicko Customer Success Representative says:

      You will not be able to do so as the income you have earned falls under the income head – Income from Salary.

  • shreeharsha says:

    Hi,

    I am working as freelance data research analyst. I am getting payment through Upwork.
    for year 2019-20 I have received 6 lakhs into my saving account.
    please help me how to file Income tax?

    • Maharshi - Quicko Customer Success Representative says:

      Hey Shree Harsha, could you please share your contact details at help@quicko.com and someone from our team will get in touch with you soon. 🙂

  • Binay Satpathy. says:

    Hi,
    I am opting for 44ada presumtive taxation from my professional income..I also have loss from equity and Future trading.Can this loss be offset against 50% profit in presumtive taxation?

    • Maharshi Shah says:

      Hello Binay, you cannot offset the losses from your trading income under the presumptive taxation scheme. Trading under equity intraday and F&O is treated under the income from business and profession head and hence, you should file ITR 3.

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