Section 44ADA was introduced from 01 April 2017, focusing the income of professional under the presumptive professional scheme.
Section 44ADA is as similar to section 44AD, the only difference is the section 44ad head Presumptive Professional Income for small business and Section 44ADA is for professionals (u/s 44AA(i)).
The purpose of the introduction of this section is encouraging increase the tax compliance of “Specified professionals”.
Features of Section 44ADA
- Assessee having Profesional income not exceeding gross income up to 50 Lakhs.
- The assessee has to declare 50% of his gross income.
- Maintaining books of accounts are not mandatory.
- No audit of the books is required.
- Fill ITR 4 under section 44ada.
The assesse would NOT be required to maintain books of accounts or get the account audited unless he claims that the profits are less than 50% of the Total Gross Receipts.
Also, Read: – Fill ITR 4
Which Profession refer under section 44AA (i)
According to section 44AA(i), Any person carrying legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration profession falls under this section.
This assessee is eligible for opting section 44ada and file ITR 4.
- Legal (Lawer)
- Medical (Doctor)
- Engineer (Civil, Electrical, Mechanical, Chemical, etc.)
- Architectural (Designer)
- Accountancy (CA/CS)
- Interior Decorator
- Fashion designer
- Any other profession as may be notified
Further Deduction allowed in Presumptive Taxation Scheme u/s 44ADA
Understanding this portion is very important, most of the taxpayer have a misconception about further deduction are allowed or not.
Finally, you have frezzed your taxable amount taking @50% of your gross income, no further deduction or expenses are allowed except:
- 80C (Maximum up to ₹ 1,50,000) – Policy, Tuition fee etc.
- 80D (Maximum up to ₹ 25000 – ₹ 30000) – Health policy or check up.
- 80E (Full amount) – Education loan.
- 80G (As per specified) – Donation.
- 80GG (Maximum up to ₹ 60000) – Rent paid.
- 80TTA/80TTB – (Maximum up to ₹ 10,000) – Intrest from saving account.
- 80 EE (Maximum up to ₹ 2,00,000) – Intrest on Home loan.
Just like salaried Profesional also avail the benefit for the above deductions.
Also Read: – Section 44AD
Let’s understand section 44ada with an Example
Mr. Sachin by profession is a chartered accountant having an income of ₹ 43 Lakhs annually, He opts section 44ADA.
Under this section, this taxable income comes to be @50% of ₹ 43 Lakhs i.e. ₹ 21.5 Lakhs.
Sachin also use deduction under section 80C, 80D, 80E, 80G, 80GG, 80TTA etc…
He is paying his life insurance policy premium of ₹ 1,20,000, He has also paying education loan payment annually ₹ 3,00,000 and Interest on Home loan ₹ 2,38,530.
Relief under section 44ADA
In case the assessee opts for a section 44ADA, there is some relaxation:
- There is no huge paperwork required while filling itr IV.
- Maintaining of Balance sheet or books of accounts is not required.
- No audit required as similar as section 44AD.
Eligibility for section 44ADA?
The person or corporate or professional body having gross income less than 50 lakhs can perform their income tax return u/s 44ada.
- Resident Individual
- Resident Hindu Undivided Family (HUF)
- Resident Firm
- Resident Companies
- Resident Association of Person (AOP)
- Resident Body of Individual (BOI)
Treatment of Lower or Higher income u/s 44ada
If the person declared the lower income (i.e. less then 50%) and his income exceed the maximum limit which is not chargeable to tax, in that case, they have to maintain the books of accounts u/s section 44AA and get it audited u/s 44AB.
FAQ u/s 44ADA
Question: Can a person who adopts the presumptive taxation scheme under section 44ADA claim any further deduction of expenses after declaring profit @ 50% of gross receipts?
Answer: No, any further deduction like depreciation, expenses, etc are not allowed after opting this scheme.
Question: Can section 44ad and 44ada be used together?
Answer: Some People involve in both small business and profession like (consultancy/freelancer/website blogger etc), In that scenario, the assessee can opt for both the section 44ad and 44ada and mention the details separately in ITR (IV).
Question: Section 44AD or 44ADA, Which taxation is better to save tax when filing income through Google Adsense earnings?
Answer: Both the section are almost the same, the only difference is small business income and professional income, income from Google Adsense (congratulation first), If your turnover doesn’t exceed 50 Lakhs go for section 44ADA, and if income is more then 50 lakhs and less then 2crore, go for section 44AD.
Presumptive taxation scheme under section 44ADA is another step from GoI to encourage the give taxation support to the upcoming startups and small business professionals.
This scheme also keeps the taxpayer free from paperwork trail, keeping books of accounts, proper audit and lots of painful activities towards tax.