Presumptive Taxation u/s 44AD and 44ADA

[Sakshi_Shah1]

@kamal

Hello,
I paid tax under 44ADA as I worked for UK based IT firm as software consultant for last 4 years.
I’m an individual working from home in India. My total salary was less than 50lakh all these years.

Now, My salary goes beyond 50lakh and I can’t use 44ADA hereafter. I learned that 44AD is for business with limit upto 2Cr, should I form proprietorship and make use of 44AD? I can hire few other developers to help me with development and documentation. Thanks for any help.

Hey @kamal

1) You cannot opt for 44AD

Section 44ADA has prescribed a list of eligible professions who can opt for this section. This includes technical consultancy too. Based on the nature of the service that you provide, it can be classified as a technical consultancy and thus if you want to opt for presumptive taxation scheme, you must opt for Section 44ADA. Further, as per Section 44AD, a person who is engaged in any profession as prescribed under section 44AA(1) cannot adopt the presumptive taxation scheme of section 44AD. The prescribed profession under Section 44AA(1) also includes ‘technical consultancy’.

2) You can opt for Section 44AD

Section 44AD has a list of business codes under which you can report your income from business. These list of codes also includes businesses such as software development, other software consultancy, data processing, other IT enabled services, etc. If your nature of services fall under any of these business codes, you can opt for Section 44AD.

Recommendation:

Both the sections when read together do not provide much clarity. You can either opt for Section 44AD or start maintaining books of accounts since you have crossed the threshold of Section 44ADA.

However, if you choose to opt for Section 44AD, there are chances that it might be questioned by the Assessing Officer (AO). If you’re able to justify to him, you can continue claiming the benefit of Section 44AD based on your turnover.