Presumptive taxation scheme for Professionals : section 44ADA

By | May 19, 2016

Presumptive taxation scheme for Professionals

Presumptive taxation scheme for Professionals has been introduced in Section 44ADA of Income tax act by Finance Act 2016 

Presumptive taxation scheme for Professionals

Applicability of Presumptive taxation scheme for Professionals :-

The scheme will apply to such resident assessee who is an individual, Hindu undivided family or partnership firm , Limited Liability partnership firm ,company, AOP, BOI, etc

Need for Presumptive taxation scheme for persons having income from profession

The existing scheme of taxation provides for a simplified presumptive taxation scheme for certain eligible persons engaged in certain eligible business only and not for persons earning professional income. In order to rationalize the presumptive taxation scheme and to reduce the compliance burden of the small tax payers having income from profession and to facilitate the ease of doing business, Finance Act 2016 has provided for presumptive taxation regime for professionals.

Date of Applicability of Presumptive taxation scheme for persons having income from profession

These amendments in Finance Act 2016 will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years.

Conditions for Presumptive taxation scheme for Professionals

In this regard, new section 44ADA is  inserted in the Finance Act 2016 to provide for estimating the income of an assessee who is engaged in any profession referred to in sub-section (1) of section 44AA such as legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette and whose total gross receipts does not exceed 50 lakh rupees in a previous year, at a sum equal to 50% of the total gross receipts, or, as the case may be , a sum higher than the aforesaid sum earned by the assessee.

What is the meaning of Profession u/s 44AA

Profession, described under section 44AA(1) of the Act. They are:

i) Legal

ii) Medical

iii)Engineering

iv) Architectural

V) Accountancy

vi) Technical consultancy

vii) Interior decoration

viii) Notified profession  are

a) The Profession of authorized representative; and the profession of film artist (actor, cameraman, director, music director, art director, dance director, editor, singer, lyricist, story writer, screen play writer, dialogue writer and dress designer) [Notification No. SO 18(E), dated 12-1-1977]

b) Profession of Company Secretary [Notification No. SO 2675, dated 25-9-1992]

c) Profession of Information Technology [Notification No. SO 385(E), dated 4-5-2001.]

Expenses / Deductions under Presumptive taxation scheme for Professionals

Under the scheme, the assessee will be deemed to have been allowed the deductions under section 30 to 38. Accordingly, the written down value of any asset used for the purpose of the profession of the assessee will be deemed to have been calculated as if the assessee had claimed and had actually been allowed the deduction in respect of depreciation for the relevant assessment years.

Books of Accounts and Audit under Presumptive taxation scheme for Professionals 

The assessee will not be required to maintain books of account under sub-section (1) of section 44AA and get the accounts audited under section 44AB in respect of such income unless the assessee claims that the profits and gains from the aforesaid profession are lower than the profits and gains deemed to be his income under sub-section (1) of section 44ADA and his income exceeds the maximum amount which is not chargeable to income-tax.

Presumptive taxation scheme for Professionals is optional 

The scheme is optional and a person can claim that his income from profession is lower than the presumptive profit, subject to obligation of maintaining accounts and have them audited.

Advance tax in case of Presumptive taxation scheme for Professionals

Yes , The Assessee opting this scheme has to pay Advance Tax as applicable to any other person.

Non Resident can not opt Presumptive taxation scheme for Professionals

As per Section 44ADA , Scheme Applies only to resident Assessee.

Section 44ADA Inserted by Finance Act 2016  for Presumptive taxation scheme for Professionals 

44ADA. Special provision for computing profits and gains of profession on presumptive basis.—(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 sub-section (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 sub-section (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 sub-section (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 sub-section (1) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.’

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