Section 44ADA – Presumptive Tax Scheme for Professionals (CA, Doctors, IT)

Introduction to Section 44ADA

Section 44ADA of the Income Tax Act, 1961, was introduced to extend the benefits of presumptive taxation to small professionals. Similar to Section 44AD for businesses, this provision aims to simplify the tax compliance process by allowing eligible professionals to declare their income at a deemed rate, thereby reducing the need for detailed bookkeeping and mandatory tax audits.

This scheme is particularly beneficial for independent professionals, consultants, and freelancers, helping them save time and reduce compliance costs.

Eligibility Criteria for Section 44ADA

To opt for the presumptive taxation scheme under Section 44ADA, the following conditions must be met:

• Who Can Opt: This scheme is available to a Resident Individual and a Resident Partnership Firm (excluding a Limited Liability Partnership (LLP)).
• Specified Professions: The assessee must be engaged in any of the specified professions. These include:
  • Legal profession (e.g., Lawyers)
  • Medical profession (e.g., Doctors, Physicians, Surgeons)
  • Engineering profession
  • Architectural profession
  • Accountancy profession (e.g., Chartered Accountants, Tax Consultants)
  • Technical consultancy
  • Interior decoration
  • Other professions notified by the Central Board of Direct Taxes (CBDT), such as film artists (actors, directors, music directors, art directors, dance directors, cameramen, singers, lyricists, story writers, screenplay/dialogue writers, and costume designers), and authorized representatives.
• Gross Receipts Limit: The total gross receipts from the profession should not exceed ₹50 Lakhs in the previous year. *Please note: For the Assessment Year 2024-25 onwards, this limit has been increased to ₹75 Lakhs if the amount of cash receipts does not exceed 5% of the total gross receipts.*

Presumptive Income Rate under Section 44ADA

Under Section 44ADA, the income from the eligible profession is presumed to be 50% of the total gross receipts of the previous year. The taxpayer can declare income higher than 50% if they wish.

Example 1: Ms. Anya, a freelance IT consultant, has gross receipts of ₹40 Lakhs from her professional services in a financial year.

• Her presumptive income under Section 44ADA would be: ₹40 Lakhs * 50% = ₹20 Lakhs.
• She would pay tax on this ₹20 Lakhs.

Example 2: Dr. Rahul, a medical practitioner, has gross receipts of ₹60 Lakhs in a financial year, with all payments received digitally (less than 5% cash).

• He is eligible for the enhanced limit of ₹75 Lakhs.
• His presumptive income would be: ₹60 Lakhs * 50% = ₹30 Lakhs.
• He would pay tax on this ₹30 Lakhs.

Benefits of Opting for Section 44ADA

Opting for the presumptive taxation scheme under Section 44ADA offers several advantages for eligible professionals:

• Simplified Compliance: The biggest benefit is the significant reduction in compliance burden. You are not required to maintain detailed books of accounts as per Section 44AA.
• Exemption from Tax Audit: If you declare income as per the prescribed rate (50% or more), you are exempt from getting your accounts audited under Section 44AB.
• Ease of Filing: The process of calculating and declaring income is simplified, leading to quicker and easier Income Tax Return filing.

When Tax Audit Becomes Mandatory under Section 44ADA

While Section 44ADA offers relief from tax audit, it becomes mandatory in the following specific situations:

1. Declaring Lower Profits: If you declare profits lower than the prescribed rate of 50% of your gross receipts, and your total income exceeds the basic exemption limit. In this scenario, you would need to maintain books of accounts and get them audited under Section 44AB.
2. Exceeding Gross Receipts Limit: If your gross receipts from the profession exceed the specified limit (currently ₹50 Lakhs, or ₹75 Lakhs if cash receipts are within 5%), you are no longer eligible for Section 44ADA. In such cases, maintenance of books of accounts and tax audit become mandatory as per regular provisions.

Unlike Section 44AD, there is no "5-year rule" for opting out of Section 44ADA. Professionals can opt in or out of the scheme on a year-to-year basis based on their income and preferences.

Filing Income Tax Return under Section 44ADA

Professionals opting for Section 44ADA are generally required to file their Income Tax Return using ITR-4 (Sugam) Form. This form is designed for taxpayers opting for presumptive income under Section 44AD, 44ADA, and 44AE, and for individuals whose total income does not exceed ₹50 Lakhs. The due date for filing ITR for individuals and firms not subject to audit is generally July 31st of the assessment year. For the Financial Year 2024-25 (Assessment Year 2025-26), the due date for non-audit taxpayers has been extended to **September 15, 2025**.

For more specific return due dates and details, it's always advisable to refer to the latest official notifications from the Income Tax Department.

Other Important Considerations

• No Expense Deduction: When you declare income under Section 44ADA, it is presumed that all expenses (including depreciation) related to your profession have already been accounted for. Therefore, you cannot claim any further deductions under Sections 30 to 38 of the Income Tax Act. However, deductions under Chapter VI-A (e.g., 80C for investments, 80D for health insurance premiums) can still be claimed from your presumptive income.
• Advance Tax: Professionals opting for Section 44ADA are required to pay the entire amount of Advance Tax on or before March 15th of the financial year.
• Simultaneous Benefit: If you have income from both an eligible business (under Section 44AD) and an eligible profession (under Section 44ADA), you can opt for both presumptive schemes simultaneously, provided you meet the respective eligibility criteria and turnover limits for each.