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Section 44ADA for professionals

May 20, 2017

PRESUMPTIVE TAXATION FOR PROFESSIONAL SERVICE PROVIDERS

 

Introduction:

 

With the start-up boom and globalization, lots of working professionals are getting into full time profession or on part-time basis.

 

Then the logical question arises, how the income will be taxed?

 

Interestingly, under Income Tax Act, there are two ways to pay tax:

 

  1. Maintain the books of accounts and pay tax on income, OR
  2. Pay on the basis of prescribed rates in income tax.

 

Many times for free-lancers or small time service providers, maintaining books of accounts could be a painful and tiring process. In that scenario, income tax can be paid on presumptive basis.

 

Sec 44ADA of Income Tax covers presumptive taxation for professionals.

 

• This section is proposed in line with the recommendation of Justice Easwar   Committee for simplification of taxation of professionals.

 

• Following objects are stated to be achieved through this proposal

  1. To bring parity between small businessmen (who enjoy presumptive taxation u/s 44AD) and small professionals
  2. To reduce compliance burden of small professionals
  3. To facilitate ease of doing profession

                                  

Section 44ADA – THE LAW

 

The following section shall be inserted with effect from the 1st day of April, 2017, namely:—

 

 (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 subsection (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 subsection (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 subsection (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 subsection (1) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.

 

LAW SIMPLIFIED

  1. This section applies to resident assesses only.

 

            Resident assessee who is

  1. Individual (or)
  2. Hindu undivided family (or)
  3. Partnership firm (other than limited liability partnership)
  1. Non resident assesses are not eligible to take benefit under this section.
  2. This section applies to profession referred to under Sec 44AA(1) as under:
  1. Legal
  2. Medical
  3. Engineering
  4. Architecture
  5. Accountancy
  6. Technical Consultancy
  7. Interior decoration
  8. Film artist
  9. Company Secretary
  10. Information Technology
  11. Any other profession notified by Board.

 

  1. Turnover/Gross receipts shall not exceed INR 50 lakh in a year. This can be proved by looking into the bank statement, cash book, bill or cash memo.
  2. If all the above conditions are satisfied, then a sum equal to 50% of the gross receipts of the assessee, on account of such profession shall be deemed to be the profits and gains of such profession chargeable to tax.
  3. The above assessee need not maintain his books of accounts under Sec 44AA(1) and need not get them audited under Sec 44AB.
  4. If assesses claim income less than 50% of the gross receipts, then he is required to maintain books of accounts and tax audit has to be done.
  5. The above provisions apply not withstanding anything to the contrary contained in Sec 28 to 43C.
  6. All the deductions shall be deemed to be allowed.
  7. Block of fixed asset shall be reduced from the block by depreciation which should be allowed if this benefit is not claimed.

 

Written down value (WDV) of depreciable assets shall be recomputed deducting depreciation which is deemed as allowed. E.g. If WDV (10%  Block) as on  1.04.2016 is Rs. 1,00,000/-, the depreciation deemed as allowed will be Rs. 10,000/- and   accordingly WDV as on 31.03.2017 will be Rs. 90,000/-.

  1. Assesses is required to pay advance tax as in case of normal assesses.
  2. Assesses can claim income more than 50% of the gross receipts.

EXAMPLES:

Let’s say, Shyam is in the business of providing mobile app services to its client in USA. It bills INR 30,00,000 in a year. Then the profits of the business on presumptive basis will be INR 15,00,000. And then income tax has to be calculated accordingly.

OPTING IN AND OUT OF THE SCHEME OF PRESUMPTIVE TAXATION

Any person, who is eligible to avail the scheme of Presumptive Taxation as per eligibility mentioned above, can at any time opt for the scheme of Presumptive Taxation.

A person can opt out of the above scheme of Presumptive Taxation at any time. However, if a person opts out of the scheme of Presumptive Taxation, then he cannot avail the benefit of Presumptive Taxation for next 5 years.

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Go Back

You say that provisions of 44ADA do not apply to a LLP but the same has not been provided in the section. It says resident assessee's and definition of assessee includes person, definition of person includes a firm and a firm includes an LLP. So please tell me why are these provisions not applicable to a LLP.

Dear Sir,

Presumptive taxation is not applicable to Companies and LLP's as preparation of books of accounts is mandatory in their respective acts. Thank You!

If a person is in the profession of Corporate Training where TDS is getting cut under section 194j and also registered for Service Tax under "Commercial Training and Coaching", then can such a professional also file returns under presumptive section 44ada?

Dear Sir,

According to my opinion, Section 44ADA is applicable for professionals mentioned in Sub-section 1 of Section 44AA. Corporate training is not specifically mentioned there, so Presumptive Taxation will not be applicable to him irrespective of the fact that TDS has been deducted under Section 194J.

Thank you!!



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