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.

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 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).

  • N K Job says:

    In my case Salary Income means Pension and I am drawing pension through Bank for which the Bank issues Form 16. In Form 26AS of TRACES the “Total Amount Credited” on account of Salary Income is shown as Rs.6,69,859. While this amount is shown in Form 16 (Part A) issued by Bank, in Form 16(Part B) the “Gross Total Income”, after adjusting Standard Deduction of Rs. 50000, is indicated as 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). Please clarify the position.

  • 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.

  • N K Job says:

    Hello – Good Day,
    I am using ITR-4 (Sugam) as I have professional income and am entitled to show only 50% of professional fee as presumptive income under Section 44ADA. In Schedule TDS-I of ITR-4 details regarding “Income under salary” and “tax deducted” have to be filled up. My doubt is – whether I should show “Gross Salary / Amount Paid/credited” in Col.3 of Schedule TDS-1 or should I show “Gross total income / total income” which is after discounting Standard Deduction of Rs.50,000/. Both these figures are available in Form-16 issued by the employer. “Gross Salary / Amount Paid/credited” is mentioned in Part-A of Form-16 and “Gross total income / total income” is mentioned in Part-B of Form-16. Kindly clarify.

  • 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.

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