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Section 44 ADA


Section 44ADA of Income Tax – Presumptive Taxation

Section 44 ADA of the Income Tax Act is a new section added under the presumptive taxation scheme, which was introduced in the Income Tax Act with effect from 1 April 2017. It was introduced to help small businesses and professionals in using a simpler taxation system with a lesser burden of compliance. There are two other sections under the presumptive taxation scheme; they are section 44AE and section 44AD, which were introduced earlier. Under the presumptive taxation schemes, the taxpayer can declare profits as a percentage of the total turnover (sales) or gross receipts. These declared profits are considered to be the business income of the assessee. A taxpayer who has opted for the scheme need not maintain detailed books of accounts. Similarly, under Section 44ADA, it is not necessary for small taxpayers to maintain books of accounts and the profits are calculated as a percentage of the total sales.

Section 44ADA of Income Tax Act

Special provision for computing profits and gains of profession on presumptive basis.
(1) Notwithstanding anything contained in sections 28 to 43C, in the case of an assessee, being a resident in India, 
who is engaged in a profession referred to in sub-section (1) of section 44AA and whose total gross receipts 
do not exceed fifty lakh rupees in a previous year, a sum equal to fifty per cent of the total gross receipts of the assessee 
in the previous year on account of such profession or, as the case may be, a sum higher than the aforesaid sum claimed 
to have been earned by the assessee, shall be deemed to be the profits and gains of such profession chargeable to tax 
under the head "Profits and gains of business or profession".
(2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), 
be deemed to have been already given full effect to and no further deduction under those sections shall be allowed.
(3) The written down value of any asset used for the purposes of profession shall be deemed to have been calculated 
as if the assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of 
the relevant assessment years.
(4) Notwithstanding anything contained in the foregoing provisions of this section, an assessee who claims that 
his profits and gains from the profession are lower than the profits and gains specified in sub-section (1) and 
whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to 
keep and maintain such books of account and other documents as required under sub-section (1) of section 44AA 
and get them audited and furnish a report of such audit as required under section 44AB.

Objectives of Section 44ADA

The following are some of the main objectives of Section 44 ADA under the Presumptive Taxation Scheme:

  • To simplify the tax system
  • To reduce the compliance burden
  • To facilitate the ease of doing business for small professionals
  • To bring parity between small businessmen (under Section 44AD) and small professionals

Eligible Professionals under Section 44ADA

The following are the professionals, who are eligible to opt for Presumptive Taxation Scheme under Section 44ADA:

  • Engineering
  • Legal
  • Architectural profession
  • Accountant
  • Medical
  • Technical consultant
  • Interior business
  • Other notified professionals such as authorized representatives, film artists, certain sports-related persons, company secretaries and information technology

Taxpayers should note that the facility of presumptive taxation is available exclusively for a resident who is an Individual, HUF or Partnership but not a Limited Liability Partnership Firm or Corporate assessees.

Opting out of the Scheme under Section ADA

Unlike the restriction placed on businesses that have opted for the scheme under Section AD, the professionals under Section ADA can opt-in and opt-out at any time. The professionals can do so without the five-year restriction.

Presumptive Assessment Rate for Professionals

The income of any professional under this section is considered to be 50% of the total gross receipts for the year, as they usually assumed that they do not incur many expenses. The professionals under this scheme are not required to maintain books of accounts. However, if they claim that their income is less than 50% of the total gross receipts and if the total income exceeds the basic exemption limit, they cannot be qualified to be classified under Section 44ADA. In such a case, they will have to maintain books of accounts to as per Section 44AA and these need to be audited as per Section 44AB.