Section 44ADA: Estimated Income Scheme for Small Professionals – Complete Guidance

Presumptive Taxation Scheme of Section 44ADA:  The scheme is started by the income tax department to provide relief to small taxpayers engaged in a specified profession. There is no need to maintain detailed books of accounts or to spend unnecessary time separating personal expenses from business expenses. The special scheme which reports your income is known as ‘Estimated Income Scheme for Small Professionals (Sec 44ADA)’. The word presumptive means that the income of the person is deemed an actual numbers do not have to be reported. Therefore, the tax is to be paid on the assumed income, not on the actual income. An assessee in his income as per the Scheme is not required to maintain books of accounts (u/s 44AA) nor to get accounts audited (u/s 44AB). Earlier the businessman was only eligible to enjoy this scheme, but now professionals can also enjoy the benefits of this scheme. The benefits of the scheme lie in the ease and simplicity of return filing.

Quick Summary About 44ADA

What is 44ADA The section is for small professionals to provide relief by simple method of taxation.
Who Can Opt? Professionals whose annual gross receipts are under Rs.50 lakh in a year
How Much Income Assumed 50% of the gross receipts
Assessees Eligible Individuals, HUFs, Partnership Firms (Not Limited Liability Partnership)
Updated in Union Budget 2021 Now it is only applicable to individuals, HUF or partnerships other than LLP. First, it was applied to all the resident professionals as per section 44AA
Benefits of 44ADA No need to maintain books of accounts, no requirement of having account audited

Applicability of Estimated Income Scheme for Small Professionals

The estimated income scheme for small professionals is applicable for those whose gross receipts do not exceed Rs.50 lakh in a previous year u/s 44ADA. An assessee may, however, declare a higher income in his return.

Income from any other business or profession (not covered under this scheme) and under other heads, shall be computed separately as per normal provisions, and then aggregated with the estimated income under the scheme, and subject to tax in accordance with the normal provisions.

Professions Covered  u/s 44ADA

The assessee is resident and engaged in a profession referred to in section 44AA(1)

  • legal
  • medical
  • engineering
  • architectural profession
  • accountancy
  • technical consultancy
  • interior decoration
  • any other profession as is notified by the Board

Updates: The Finance Act, 2021 has amended the provisions of section 44ADA to define eligible assessee w.e.f. the assessment year 2021-22, the benefit of section 44ADA is eligible only in the case of an assessee who is (a) an individual; and (b) a partnership firm other than a limited liability partnership.

Features of Presumptive Schemes for Professionals 

This scheme allows the small taxpayers to reduce their burden and help them to focus on their work only. The features introduced under section 44ADA are as below:

  • ¬ This scheme is available to professionals such as software engineers, doctors, lawyers, Chartered accountants, architects, graphic designers, interior decorators etc. The person, those who are self-employed but not working for an employer.
  • ¬ Professionals can go for this scheme only if their total receipts in one financial year are Rs.50 lakh or less.
  • ¬ Income of the person should be assumed to be 50% of total receipts.
  • ¬ For income tax returns, details of all the expenses are not required to be provided.
  • ¬ Professionals are not required to keep formal accounting records.

Disallowance of Deductions under Business Head

All deductions under sections 30 to 38, including depreciation and unabsorbed depreciation, are deemed to have been already allowed, and no further deduction is allowed under these sections. Even salary/ interest to partners is not deductible under “Estimated Income Scheme for Small Professionals”.

Depreciation

The written down value is calculated, where necessary as if depreciation as applicable has been allowed.

Moreover, it will be assumed that disallowance, if any, under sections 40, 40A and 43B has been considered while calculating the estimated income @ 50 per cent.

Declaration of Lower-Income Consequences

If an assessee declare his income to be lower than the deemed profits and gains as stated above, then the following consequences are applicable

  • The assessee will have to maintain the books of account as per section 44AA, if his total income exceeds the exemption limit.
  • The assessee will have to get his books of account audited under section 44AB (irrespective of turnover), if his total income exceeds the exemption limit.

In case treating 50% income as expenses seems to be low and your actual expenses are higher, you may not opt for this scheme as this scheme is optional. In this case a person may continue to file his/ her return in ITR-4 and can claim all the actual expenses. After claiming expenses, on the remaining income tax is paid but the person has to keep proper records of the accounting. As well as details of profit and loss account is also prepared.

Advance Tax Payment

The assesee who is declaring his income under estimated income scheme for small professionals shall be required to deposit whole amount of advance tax for the financial year by 15th of March of the year.

This new scheme (Estimated Income Scheme for Small Professionals)  of filing tax return is beneficial to many professionals who are self-employed such as doctors, graphic designers, software experts and freelance writers etc.

Example to understand the scheme u/s 44ADA

Mr A is a doctor has the following details for the A.Y.2022-23.

Particulars Amount (p.a)
Income
Gross receipts from practice 35 Lakh
Rent from house property 1,20,000
Interest on securities/bonds 2,50,000
Saving bank interest 15,000
Deductions
Mediclaim
25,000
PPf 1,50,000
LIP 20,000

Solutions

Particulars Amount (Rs.) Amount (Rs.)
Income from Profession
Deemed income from profession under “Estimated income scheme for small professionals” u/s 44ADA i.e 50% of Rs.35 Lakh 17,50,000 17,500,000
Income from House Property
Gross Annual Value Rs.1,20,000
Less: 30% of Standard Deduction Rs. 36,000 Rs.84,000
Income from Other Sources
Interest on securities/bonds 2,50,000
Saving Bank Interest 15,000 2,65,000
Gross Total Income 20,99,000
Deductions
u/s 80c PPF/LIP 1,50,000
u/s 80D Mediclaim 25,000
u/s 80TTA Saving Bank Interest 10,000 1,85,000
Taxable Income 19,14,000 (Calculate Income Tax Here)

3 thoughts on “Section 44ADA: Estimated Income Scheme for Small Professionals – Complete Guidance”

  1. Hello. For last few years, I have been filing my returns as a professional, taking advantage of section 44ADA. However, this year I will be crossing the limit of Rs 50L. Can I file under 44AD instead? If not, what are my options.

    Thank you.

    Reply
  2. In the Presumptive Tax Scheme does a professional need to maintain record of total receipts or is the total receipt only assumed. Also can you change your total receipts under this scheme every financial year or it remains constant.

    Reply

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