Presumptive Taxation u/s 44AD and 44ADA

Hi @b500

Since your Turnover exceeds 10 crores tax audit under Sec 44AB(a) is applicable irrespective of the profit or loss.

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2 posts were merged into an existing topic: Applicability of Tax Audit in India

My earn money as a freelancer and use 44ADA. My expenses (personal+business combined) are around 20% of what I earn. So I save 80% money.

Some CA says I can just use 44ADA, while others tell me not to use it since my expenses are very little. If I can’t use 44ADA, what’s the point of it?

How to use 44ADA while avoiding any potential trouble?

Hello @ProfessionalLo,

Section 44ADA provides a presumptive taxation scheme for professionals where 50% of your gross receipts from profession are treated as your income. The section can be opted only if you have gross receipts up to Rs 50 Lakhs in previous year. Further, you are not allowed to claim as deduction any of the business expenses which you incurred.

However, if you do not opt for 44ADA, you would be taxed as per the normal provisions of Income Tax Act 1961 and would be allowed to claim for deduction of all expenses related to your profession.

You can make an assessment in both the scenarios and opt for one which is the most beneficial to you. Following is the link to the complete guide of Section 44ADA of Income Tax Act, 1961.

Hope it helps!

I have opted for a presumptive taxation scheme. Can I claim any further expenses from my gross income?

Hey Shachi,

Since you have declared the prescribed percentage of your gross receipts or turnover as income, you cannot claim any other expenses as a deduction.

Hope this helps.

I am a software consultant and fill ITR 4 under presumptive profession (Section 44 ADA). Last year also I used the same section to file ITR. I also have a valid GST number. This year apart from my professional income, I also have some Short term capital gains from sale of equity shares and intraday trading losses in equity shares. Please resolve below queries:-

  1. How and where to declare Intraday losses in equity shares in my ITR while filing under Sec 44 ADA. Is it mandatory to declare these losses while filing ITR? My turnover from intraday trading is very nominal less than 1 lac Rs (Absolute profit= Profit + loss on intraday trading). If I don’t want to carry forward losses can I ignore them and not declare at all?
  2. Is there any risk in ignoring intraday trading loss them altogether? As per my understanding 1 lac is a small amount only and i don’t want to carry forward the losses.

Hey,

To report your presumptive income from software consultancy, STCG from sale of equity shares and loss from intraday trading, you need to file ITR-3.

  1. Report Intraday Loss in Schedule P&L (point. 65). If the losses are negligible, you may not report them on the basis that you dont want to claim and carry forward the losses.

  2. If the total income is more than basic exemption limit of INR 2.5 lacs and you want to claim the loss, tax audit under Section 44AB is mandatory.

Check out our determine tax audit tool :slight_smile:

Is there a provision that FNO traders cannot opt for presumptive taxation scheme? If I have a few FNO transactions and incurred a loss, do I need Tax audit ? And what if I opt for presumptive taxation scheme and show a 8% profit as per section 44AD audit does not apply.

Hi @Kiara,

An F&O Trader can opt for Presumptive Taxation Scheme under Section 44AD. You cannot avail the benefit of Section 44AD if you are a Non-Resident in the financial year. Read more about Section 44AD - Presumptive Taxation for Business on our Learn Center.

Hope this helps :slightly_smiling_face:

I am working as a software professional with salary of 5Lakhs per annum and I am doing a freelancing job which also fetching me 5 Lakhs per annum(profit is more than 50%). Will I be able to take the benefit of 44AD?
What will be I total Taxable Income?
Do I need to maintain a book of accounts?
Is it legal or illegal to take benefit if I have both salary and professional income?

Thanks
Vignesh

Hey @Vignesh054 ,

To opt for Presumptive Taxation Scheme under Section 44ADA, the following two conditions should be satisfied:

  1. The gross receipts of the profession should be less than or equal to INR 50 lacs.
  2. The taxpayer should report 50% or more of the gross receipts as income in the ITR.

Hence, you can take the benefit of 44ADA for professional freelancing income and don’t need to maintain books of accounts.

Further, there’s no harm to take benefit and both salary & professional income has to be reported in ITR.

Here, you can read below article for more insights about presumptive taxation and calculation of taxable income:

I hope, this helps :slightly_smiling_face:

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Thank you so much.
Thanks
Vignesh

Does business particulars need to be accurate for presumptive taxation? Why IT Department asks for it and what does it concludes from that?

@Divya_Singhvi @TeamQuicko

@Kaushal_Soni @Saad_C @Divya_Singhvi @Laxmi_Navlani @AkashJhaveri can you help with this please?

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Hey @Scalperji

Mandatory business particulars need to be accurate for presumptive taxation while filing income tax return.

Tax payer should report business name, business activity etc in the return. IT Department can verify the genuineness of one’s business or profession and accordingly assess business incomes & tax liability.

Thank you @Kaushal_Soni for responding to the Q. Indeed, there should be accurate reporting of the Business name and activity.

But here I am referring to the Financial Particulars of business, Like the Sundry Creditors, debitors, assets liabilities, Balance with banks, all these needs to be accurate and exactly matching? As it’s presumptive B&P, its hard to keep all the records and compile financial particulars for the B/P.

Hey @Scalperji ,

In presumptive income case, there is no need to maintain regular books of accounts as well as no reporting of financial particulars in Balance sheet schedule under ITR-3.

You can report mandatory financial particulars such as debtors, cash balance, creditor etc. in 'No Accounts Case" tab in Balance sheet schedule under ITR-3.

Hope, it helps!

Hi,

Am I liable to maintain books of accounts if

I have salary income over the basic exemption limit (say 9 lakhs).
I have intraday turnover of 11000 and gross profit of 10000
My turnovers from speculative or non-sepculative business has not crossed 1.2 lakh in the last three years.
Asking this because wanted to know, if I am not liable to maintain books of accounts as per section 44AA, can I still fill items (1-5)
Part A-BS - BALANCE SHEET AS ON 31ST DAY OF MARCH, 2021 OF THE PROPRIETORY BUSINESS OR PROFESSION (fill items below in a case
where regular books of accounts are maintained, otherwise fill item 6)
or should I fill only item 6.

Thanks,
Saurabh