Section 44ADA – Presumptive Taxation Scheme for Professionals
Applicable for FY 2016-17 and FY 2017-18
From financial year 2016-17, a new Section 44ADA is introduced for presumptive income for professionals. This section is similar to section 44AD for traders.
Under this section professionals such as legal, medical, engineering, architect, accountancy, technical consultancy, interior decoration or any of the profession as given in section 44AA are allowed to presume 50% of the gross receipts as net profit. This is applicable only to professional whose gross total receipts does not exceed Rs. 50 lakh rupees.
The scheme is applicable to resident assessee who is an individual, Hindu Undivided Family (HUF) or partnership firm but not Limited Liability Partnership (LLP) and company.
The assessee can opt in and out of scheme at any time. For example, a professional may file his return for AY 2017-18 under section 44ADA and opt out it for the AY 2018-19. There is no restrictions imposed in this regard .
A partner of a professional firm gets interest and salary from the firm under section 40b. Such partner can not opt for presumptive scheme under section 44ADA in respect of such salary and interest.
Persons engaged in any of the following professions:
Certain sports related persons
Company Secretaries and
Claiming Higher or Lower Profit
In case an eligible assessee carrying on the eligible profession, the profits and gains of such profession is deemed to be 50% of the gross receipts from such profession. However, the assessee can claim higher profits.
However, an assessee can claim profits to be lower than 50% by maintaining books of account as mentioned in section 44AA and gets them audited as per section 44AB.
If the total income of asseessee (i.e 50% of gross receipts plus all other incomes) doesn’t exceed the maximum amount not chargeable to tax i.e Rs. 2,50000 or 5,00,000, then he is not required to maintain accounts and get them audited.
Deductions from deemed profit
No deduction of Section 30 to 38 (including unabsorbed depreciation) is allowed from such deemed profit. Therefore no deduction of such expenses can be taken from such deemed profit.
Where the eligible assessee is a partnership firm, salary and interest to partners subject to section 40b shall be deducted from such deemed profit.
And also disallowance under sections 40,40A, 43B is not allowed as deduction if income is deemed under this section.
WDV of depreciable assets
The written down value of any asset of an eligible profession shall be deemed to have been calculated as if the eligible assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant years.
Maintenance of Accounts
The assessee is also not required to maintain books of account under section 44AA if he files return under section 44ADA. However, such an assessee shall be expected to maintain minimum records such as bill books to verify his gross receipts as and when required.
For F.y 2016-17, persons filing return under this section are required to pay advance tax in four installments. While in F.y 2017-18 such persons has to pay advance tax in one installment only, on or before 15th March of the financial year.
Mr.X, a practising Chartered Accountant has gross receipt of Rs.42 lakhs . He had paid Rs. 3,60,000 towards rent without deducting tax at source. He has unabsorbed depreciation of Rs. 2,40,000. Calculate his total income if he opts for presumptive taxation under section 44ADA ?
Since , Mr.X is a practising CA whose gross receipts are not more than Rs. 50 lakhs, he is eligible to opt for section 44ADA. 50% of his gross receipts or a higher amount shall be deemed to be the profits and gains of such profession. So, 50% of 42 lakhs = 21 lakhs, will be deemed to be his total income. Unabsorbed depreciation under section 32 is not allowed as deduction.