The Government has also inserted section 44ADA after section 44AD in Income Tax Act 1961 w.e.f. 1st April 2017. This presumptive taxation scheme of section 44ADA is introduced to give relief to small taxpayers engaged in the specified profession. Professionals whose total gross receipts are not more than Rs. 50 lakhs in a financial year can claim benefit under this section from the financial year 2016-17 onwards.
Section 44ADA of Income Tax Act 1961
Objectives of section 44ADA are such as reduction in compliance burden of small professionals, simplify the process of taxation for them and bring parity between small businessmen and small professionals.
Eligibility for claiming deduction U/S 44ADA
A non-resident person and limited liability partnership firm cannot claim benefits under this section. Only a person resident in India, who is an individual, HUF or partnership and is engaged in following professions can claim benefits of presumptive taxation scheme of section 44ADA:
- Engineering or architectural
- Interior decoration
- Technical consultancy
- Other professions as notified by CBDT
- Film artists
- Information technology
- Authorized representatives
- Certain sports related persons
- Company secretaries
Section 44ADA will compute the income of a person claiming benefits under this section on the presumptive basis, i.e. @ 50% of the total gross receipts of the profession. He can also declare his income higher than 50%. This section will deem that a person has claimed all deductions of expenses and thus it will not allow for any further deductions. Section 44ADA will calculate the written down value of any asset used in such business covered under this section as if depreciation as per section 32 is claimed and has been actually allowed. A professional firm cannot claim a deduction for interest or remuneration paid to partners.
This section does not mandate a person to maintain the books of accounts or auditing of books of accounts. However, if he declares his income at a lower rate, i.e., less than 50%, this section mandates him to maintain the books of account U/S 44AA. He also needs to get the books of accounts audited U/S 44AB.
An assessee is liable to pay the whole amount of advance tax on or before the 15th march of the PY if he opts for the presumptive taxation scheme.
A person can opt out of the presumptive scheme at any time. However, if he does so he must remember that not only he loses presumptive tax benefits but this section will also disallow him from presumptive taxation for the next five years.