Presumptive Taxation Scheme: Budget 2023

Hello Niyati, I am working as freelancer for a foreign client. My income would be 60L approximately. Since the income exceeds the limit of 50L but less than 75L can I still opt for sec 44ADA? I have no other source of income.

Hi @Ishwar,

Yes, you can opt for Sec 44ADA as your income is less than ₹75 Lakhs. The enhanced limits are applicable for the FY 2023-24. Also you will have to check that your cash receipts don’t exceed 5% of the gross income from Freelancing.

Hope this helps!!

1 Like

Thanks for your reply. I don’t earn any money in form of cash.

Hi @Ishwar,

Since you won’t be earning any money in form of cash you can opt for Sec 44ADA

1 Like

Hi @CA_Niyati_Mistry. Thank you so much for your time.

I successfully filed my taxes under 44ADA for AY 22-23. I want to file my tax for AY23-24 now. I have two major questions.

  1. For AY23-25, do I have to pay advance tax (100% of my total tax) by 15th March 2023 or 2024? Which year?
  2. If I have to pay it by 15th March 2023, I should go to the income tax website and pay advance tax for AY23-24. But I distinctly remember that for AY22-23, I could file my tax from the normal File Income Tax section where I could select section ADA and fill my information and the website would calculate my tax for me. But when opting for advance tax this year I do not see any such options.

Cleartax has this to say.

Further, anyone opting for this scheme is not bound by the mandate of maintaining books of accounts too. While he is also liable to file his return by 31 July of the assessment year, he must file his return in ITR 4.

They say I have to file it by 31st July 2024. What am I missing? Again thank you for your time!

@CA_Niyati_Mistry I have a thread about this topic here now.

On further research I realised I misunderstood quite a few things.

Please correct me if I’m wrong!

Income tax filing and Advance payment are completely different things. You pay advance tax before 15th March of the financial year and then file your income tax returns in the Assessment year.

Okay it makes sense now. I will make the following assumptions for my timeline. Please let me know if I am correct.

  1. For my FY22-23 income, I should go to the income tax website and pay my estimated advanced tax for the income I earned between 1st April 2022 and 31st March 2023 under AY23-24. Because I’m eligible for 44ADA, I have the benefit of paying it all in one go before March 15th 2023 instead of paying it in instalments.

  2. Then before 31st July 2023, I will have to file my income tax return. Neutral case - I won’t have to pay anything when filing my ITR because my estimated advanced tax payment was correct. Worst case - I have to file any difference and pay some more. Best case, my advance tax payment was more and I get a refund.

Are the dates mentioned correct? Are my assumptions right? Thanks again for your time.

Hi @Vivek_Negi,

Yes, the dates mentioned and the assumptions are correct. Income Tax Return filing and Advance Tax payment are two different concepts. While you file ITR after the PY 2022-23 ends till 31st July, Advance tax is the tax liability that you pay before the year ends. In case of 44ADA only one installment of Advance tax is applicable i.e 15th March where you pay the entire estimated tax liability in one go.

At the time of return filing the income will be calculated again and thus tax liability might differ from what you had determined earlier at the time of Advance tax payment. In case you have paid excess Advance Tax you will receive refund and in case of deficiency you will have to pay tax along with interest.

Hope this clarifies!

1 Like

so . whether i opt for presumptive or non-presumptive ; advance tax has to be paid as pet the % slabs and as per the dates ! am i right ?

Hi @HIREiN

Advance tax is to be paid if the estimated tax liability exceeds ₹10,000 in a financial year, irrespective of whether presumptive taxation is opted for or not.

Hope this helps.

Hi

I work for a foreign client and approximate total invoicing would be for around 1.2Cr

Is it wise to work as an individual or form an entity?

Hi @ankurs,

44AD/ADA can only be opted by Individuals, HUF and Partnership firm (other than LLP). If you wish to continue opting 44AD/ADA, to work as an Individual would be wiser.

Hope this helps!

Hi thank you for the detailed explanation.

I am a freelance software developer with income 30L in FY22-23

My professional expenses are 10L

Can I opt for this scheme? What would be taxable amount in that case?

Yes, you can opt for the presumptive scheme, the taxability would be implied on ₹20 Lakhs at slab rates.

Hope this helps.

Hey @CA_Niyati_Mistry
Thank you very much for your detailed explanation about PTS.

I would really appreciate if you take time to solve my query.

I am a freelancer and I am earning money from international clients only.
My yearly turnover is around 30L. I do website designing, software dev. and digital marketing.
I do outsource some of my work to local freelancers.

I have been filing ITR for over 3 years under 44AD and I am selecting 21008 (Other service n.e.c.)
I am showing profit of around 10% (actual may be between 20-40%) of my turnover and so I am not paying tax as my income is below 5L.

My questions to you is

  1. Can IT Dept. ask to explain about my expense which is 90% of my turnover?
  2. Is it OK to pay local freelancers in cash (I always pay up to 10K INR max)?
  3. I am having GST and had filed LUT and so I am paying 0 GST. Does GST dept. ask for FIRC doc?
  4. What else can be shown to GST dept. in case I need to prove that the income I received had been sent by foreign client?
  5. Is it ok to choose 21008 (Other service n.e.c.) under 44AD? If not what should be code under 44AD?

Thank you very much in advance.

What if in future my income exceeds 75L then can I file tax under section 44AD?

Hi @love4u_now,

The answer to your questions are as follows:

  1. Generally IT Dept will not ask you to explain the 90% of your expenses. But in case they do you can take references from Case Laws where it was held that if the taxpayer has opted for 44AD/ADA he is not required to maintain books of accounts nor the IT Dept shall ask for the same.
  2. It is always advisable to pay business related expenses through banking channels.
  3. Since you’ve filed LUT and you are not paying any GST, the Dept may ask for FIRC document to make sure if you have received the export proceeds in time.
  4. You can show the Purchase order details or any contract if you have entered into with the Foreign clients for providing Freelancing services. Also you can show the bank statement in which the payment is received.
  5. Ideally, you are a Freelancer which means you are providing services as professional. Section 44ADA is for professionals those provide services where you have to declare 50% of your total receipts or actual profits whichever is higher as your income and calculate tax accordingly. Also the code selected is correct but the section 44AD is not correct.

Hope this helps!

Hi @Ishwar,

In future if your income exceeds ₹75 Lakhs then you cannot file tax return under section 44ADA. Then it will be treated as Regular business income where calculations will be made for profits by deducting purchases and expenses from your sales.

Also, if you opt out of the Presumptive Taxation Scheme, you can not opt for the same for the next 5 Financial years.

Hope this helps!

Thanks you very much for your reply.

It seems there is something wrong with answer number 5.

You are saying “Also the code selected is correct but the section 44AD is not correct.”

Did you mean that the code 21008 is not under 44ad or ?

As I am also outsourcing some of my work I do want to continue to use 44ad only. Could you please suggest code from 44ad for my specific biz?

Thanks

Hi @love4u_now,

So the correct Section you can go for is 44ADA and there are specific codes for the same. You can check which code is applicable to you by referring this article.

Hope this clarifies!

Hello,

is GST registration mandatory for section 44ADA, if the income exceeds 20+L.

Nature of Job - Technical Consulting

Thanks.