The presumptive taxation scheme for professionals was introduced with effect from AY 2017-18 with the intention of relieving small professionals from the hassle of maintaining books of accounts. In Budget 2023, the finance minister extended the option of presumptive taxation scheme to those professionals with gross receipts of less than `75 lakh. But only those professionals with less than 5% cash receipts can avail the said extended limit.
Scope of Section 44ADA
Section 44ADA provides an option for computation of gross total income applicable to professionals resident in India. The option is available only to individuals or a partnership firm (other than LLP) whose total gross receipts do not exceed `50 lakh. From AY 2024-25, the option would also be available to professionals whose total gross receipts do not exceed `75 lakh and cash receipts do not exceed 5% of the total gross receipts.
Exercising option under Section 44ADA
Under Section 44ADA, a sum equal to 50% of the total gross receipts is presumed to be the gross taxable income under the head ‘income from business and profession’. Hence, the specified professional is not required to maintain books of accounts. For the purpose of this section, the taxpayer is assumed to have claimed all deductions and no other deductions, other than deductions under Chapter VI-A.
Tax calculation under Section 44ADA
Income tax will be calculated at applicable slab rates for individuals and 30% in case of firms. Individuals can opt to be taxed under either the new tax regime or the old tax regime. The tax regime opted for in the previous year will be applicable to all subsequent years. The option of tax regime can be changed only once in the lifetime of the taxpayer.
Credit of tax deducted at Source
For professionals, tax is deducted at source (TDS) as per the provisions of Section 194J at 10%. Credit for taxes can be claimed at the time of filing the income tax return and refund for any excess TDS can be claimed.
The finance ministry is moving towards a simplified tax regime in case of individuals and small business operators and professionals. The presumptive tax scheme does not only provide a simple and easy option for the presumptive computation of taxable income but also elevates the administrative burden of the tax department from verifying allowable expenses.
The writer is partner, Nangia Andersen India. With inputs from Neetu Brahma.
Under Section 44ADA, the professional is not required to maintain books of accounts
Cash receipts should not exceed 5% of the total gross receipts to benefit from the scheme
Income tax will be calculated at applicable slab rates for individuals and 30% in case of firms