44ADA - Presumptive Taxation Scheme

  •  4 min
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  • 05 May 2023

In the FY 2016-17, a presumptive taxation scheme under section 44ADA was introduced providing an easy method of taxation to the small professionals. Gains arising from professions mentioned under Section 44AA(1) of the Income Tax Act, 1961 can be presumptively taxed u/s 44ADA. Those professionals who have gross receipts of less than Rs. 50 lakhs can take the benefit of section 44ADA. In this article, you will learn in detail about the presumptive taxation scheme u/s 44ADA of Income Tax Act.

Let us begin by learning the scope of section 44ADA.

To calculate the profits and gains of small professionals under certain circumstances, the provisions of section 44ADA are useful. The purpose of this scheme is to provide simplified presumptive taxation to the professionals. Earlier, this scheme was applicable only to small businesses. The advantage of this presumptive taxation scheme is that it reduces the burden on small professionals and makes it easier to carry on the business. Under this scheme, profits are assumed to be 50% of the total gross receipts.

The Indian assessee eligible for the Section 44ADA are as follows;

  • Individuals
  • Hindu undivided families (HUFs)
  • Partnership firms (limited liability partnerships are not eligible)
  • Simplification of the tax system
  • Reducing the burden of compliance
  • Facilitating small professionals with ease of doing business
  • Bringing parity between small professionals and small businessmen under section 44AD

Presumptive Income For Section 44ADA Is Available To Whom?

Any assessee who is a professional under section 44AA of the Income Tax Act, 1961, with yearly gross receipts of less than Rs. 50 lakhs is a beneficiary of section 44ADA.

Professionals under the following profession are eligible under section 44ADA:

  • Engineering
  • Accounting
  • Legal
  • Medical
  • Architecture
  • Interior decorations
  • Technical consulting
  • Other professionals, as mentioned below:

a) Movie artists that also include cameraman, singer, lyricist, producer, editor, actor, director, story writer, dialogue writer or screenplay, music director, art director, dance director and custom designer.

b) Authorised representative who represents a person for a fee before any lawfully constituted body. It does not cover an employee of the person who is being represented or a person who is carrying on the accountancy profession.

c) Any other notified professionals.

What Is The Presumptive Income Under Section 44ADA

Presumptive income is higher of the following;

  • 50% of the total receipts from the profession
  • Income offered by the assessee from the profession

The assessee will get the following benefits under section 44ADA;

  • No requirement of maintaining the books under section 44AA
  • No need of getting the accounts audited under section 44AB

When Is The Assessee Required To Maintain Audited Books And Accounts?

Under Presumptive Taxation Scheme of section 44ADA, the assessee meeting the following criteria shall maintain and get the accounts audited under section 44AB;

  • Assessee’s total income is more than the basic exemption limit.
  • Income from the profession is lower than 50% of the total gross receipts.

The above mentioned are a few points that every small professional or businessman must know to avail the benefits under the presumptive taxation scheme under section 44ADA of Income Tax Act.

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