Section 44ADA: Presumptive Income @ 50% for Professionals

The government of India has tried to lower the burden on small businesses as well as the professionals. The incentive of presumptive income has also been provided to the professionals under the act. Let’s have a look on the presumptive income scheme as provided to the professionals in this article.

As per section 44ADA, if the gross receipts of the professional are less than Rs.50 lakh can opt for the presumptive scheme. The income chargeable to the tax would be the 50% of the gross receipts of the year. The professionals who can opt for the scheme are:

  • Legal
  • Engineering
  • Technical consultancy
  • Interior Decoration
  • Accountancy Profession
  • Medical

The benefits of this scheme can be availed by individual, HUF or Partnership but these should be resident of India. The benefits could not be availed by limited liability partnership.

The demerit of the scheme is that this is assumed that all the deductions under section 30- 38 are provided and thus no such deduction is allowed from the presumptive profit and the taxpayer has to pay the tax on such profit. The written down value of the asset is calculated as if the taxpayer has been allowed all the deductions in respect to depreciation.

Example illustrating the calculation of WDV of asset: The WDV of the asset on 01-04-2016 is Rs. 50,000. It is assumed that the asset falls into the block of 10% of depreciation. The WDV of the asset on 01-04-2017 would be Rs. 45,000. It will be assumed that the depreciation of Rs. 5,000 has been provided to the taxpayer.

If the taxpayer opts for this scheme, the taxpayer does not have to maintain the books of accounts. Also, the taxpayer can claim the lower profits than the 50% of the gross receipts if he feels that the actual profits that will be chargeable to tax are less. But in this case the taxpayer has to maintain proper books of accounts and also gets these books of accounts audited as per section 44AB. The actual profits can be calculated as

Profits= Income – expenses – depreciation (As allowed under the act).

Points to be remembered:

  1. Any person can opt for the presumptive scheme at any time. But if the person does not opt this scheme, then in that case he cannot claim this scheme again for next 5 years.
  2. In case the business pays salary/ interest to the partners, these would not be allowed to be claimed by the business as deduction from the profit.
  3. The business is required to comply with the Advance tax provisions i.e. the professionals has to pay all the installments of the advance tax.
  4. This scheme can only be opted by the professionals having gross receipts less than Rs.50 lac.

Example: An advocate has a gross receipt of Rs.40 lac. If the advocate opts for presumptive scheme the profits are assumed to be 50% of the gross receipts i.e. Rs.20 lac. But now the taxpayer is not allowed to claim any expense or depreciation. It is assumed to be already provided. Now he need not to maintain any books of accounts.

But if he finds that the actual profits are less than Rs.20 lac, he can maintain all the books of accounts and pay the tax as per the actual profits i.e. Profit = Income – Expenses. But in this case, he also has to get the books of accounts audited.

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