Presumptive Taxation u/s 44AD and 44ADA

Hi, I am a technical consultant and was thinking of filing under section 44 ADA for my income. Basically pay tax for 50% of my total income. When I spoke with a CA, he advised me to not go for this scheme as this can create problems later, since my actual profit will be more than 50%. I looked online and many CA websites share his opinion, their recommendation is to maintain books and then file under regular scheme and not presumptive scheme.

My question would be is it illegal to use presumptive taxation if my profits are above 50%? If that’s the case then the law (44ADA) is pretty meaningless I think. Can someone who has filed under 44ADA please advise?

Hi @Sankar123,

Following are the benefits of filing under 44ADA:

  1. Taxpayer does not need to maintain books of accounts as per section 44AA,
  2. Taxpayer does not need to pay advance tax each quarter and can pay it in last installment i.e, by 15th march of the financial year,
  3. Tax audit will not be applicable if professional income is shown under 44ADA,
  4. Taxpayers can file ITR-4 which is simpler than ITR-3.

However, as per section 44ADA, a taxpayer needs to show a minimum 50% of gross receipt or a higher amount claimed to have been earned as income while opting for 44ADA.

Hope this helps :slightly_smiling_face:

1 Like

Sec 44ada professional income it return filed person gross receipts rs:15 lacs and rebate sec80c lic premium pay amount rs:50000/- in f.y.20-21
Question:
Assess it return filed benefit for new or old scheme in it act.

Hey @Sundaraiah_Kollipara, you can find out whether you would be benefitting using the old tax regime or the new one using the income tax calculator:

I am a consultant with annual income of 30 lakhs and would like to go in for Presumptive Taxation (Sec 44ADA) but as I will also have capital gains, I need to file ITR3. Is this correct even if my earnings is less than 2Cr?

Hi @Akila_S, in case you have a presumptive income along with capital gains you will need to file ITR-3. With Quicko, you don’t have to worry about choosing an ITR, our engines will help you choose what suits you best.

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Regarding presumptive tax scheme (PTS), if one has income/profit higher than 6% of the turnover, can still s(he) choose the income as 6% of the turnover? Thanks.

Hi @Sudipta_Guru , it is required that you show minimum 6% of turnover. If you earn profits higher than 6% of your turnover you will have to show that profit. You can read up more on how to accommodate your profits under Section 44AD in the following article. Will be happy to help if you face any further hurdles. :blush:

(1) When should one go for 44 AD and when to go for 44 ADA ?
(2) Why shouldn’t a normal professional having income upto 50 Lakh, file taxes under 44 AD (where taxable income will be 6% = 3 Lakh) rather than opting for 44 ADA (50% of gross receipts will be taxable = 25 lakh) ?

Hey @ashish_shah

  1. 44AD - can be opted in case of business income…, whereas (Profit: 6 or 8%)
    44ADA - can be opted in case of professional income. (Profit: 50%)

  2. Depending upon whether profits/gains is from Business or Profession 44AD or 44ADA will be applicable respectively.

Hope this helps. :slight_smile:

@vinith.r
Let’s say, if a person is freelancing and his income is say 50 Lakh.
Will such income be considered business income or professional income?

@ashish_shah

Freelancers can opt for Presumptive taxation scheme under Section 44ADA.

Feel free to ask if you need any further help.

Cheers!

@vinith.r what if a freelancer forms a proprietorship?
can then he skip 44ADA and use 44AD?

Hi @ashish_shah

The structure of the organisation doesn’t matter.
It’s more of whether you’re engaged in a business or profession (service) that will determine the applicability of 44AD or 44ADA.

:slight_smile:

I have a salary income of 20 lakhs for which my company is deducting the tax regularly and reports it on form 16. I also have a freelance income of around 16 lakhs. should I use ITR1 and add freelance income as income from other sources h or use 44ADA and add salary income as additional income? I have not paid any advance tax for freelance income yet but salary tax has been paid by the employer so can I still use 44ADA which requires advance tax before 15th Mar?

Hi @breeze_S, yes because your gross receipts are less than 50 Lakh rupees you can opt for presumptive taxation under 44ADA and pay taxes any time before filing your return. If you have any other queries would love to help. :blush:

1 Like

Sankar, Did you get a solution to this query ? I do not see you have got a proper response on it on this forum. I too have same case as my profits are higher than 50% of gross receipts but CA is telling we need to provide only 50% of gross receipts. On April 2022, I have read the income tax act for 44ADA and it is mentioned that the person can voluntarily declare more than 50% earning. “voluntarily” is an ambiguous statement and why “voluntarily” and why not mandatory? Also on the ITR form, it is mentioned that 50% of gross receipts or earning/income which ever is higher. So CA are also not clear on this.

So that means CA is incorrect(your too who is not recommending this scheme). The benefit one can have with this is that he/she does not need to maintain the books. Income tax department has given clear guidelines in case earning is less than 50% than either pay 50% of gross receipts or maintain accounting books but not clear guideline in case profit is higher than 50%. So without checking the income tax act one will trust only what a CA is telling.

Please share if you have found any clarity on it.

Hey @AmDang

As per Section 44ADA, if the gross receipts of an eligible profession are upto INR 50 lacs, they can opt for presumptive taxation scheme and report 50% of gross receipts or a sum higher claimed to have been earned as the income. Thus, under Section 44ADA, income will be computed on
presumptive basis, i.e. @ 50% of the total gross receipts of the profession. However such person
can declare income higher than 50%.

If you opt for presumptive taxation scheme, you need not maintain books of accounts, Further, you cannot claim any expenses. Advance Tax on such income must be paid on or before 15th March.

Thanks Sakshi. That is what is written in section 44ADA but being part of Tax Q&A team, can you confirm why it is “can” and why not “must” ? Do you believe there is difference in the two ? That is what exactly is my question.

“However such person can declare income higher than 50%”

If you aren’t maintaining the books of accounts, it is difficult to determine the actual profits. The best person to judge the actual income is the taxpayer. We have thus interpreted the section as defined in the Income Tax Act that mentions declaring atleast 50% of the gross receipts as presumptive income.

Note: The options we have suggested here are on the basis of interpretation of the section and our advice based on the experience of filing tax returns for presumptive taxpayers.