Did you know that professionals like doctors, lawyers, interior designers, freelancers, and others can be taxed on only half of their professional income? To make tax compliance easier for such professionals, the presumptive taxation scheme was introduced under Section 44ADA starting from FY 2016-17.
Under this scheme, professionals can declare 50% of their total turnover as profits for tax purposes. However, certain conditions must be fulfilled to qualify for this option.
What is Presumptive Taxation?
Presumptive taxation is a method where the government assumes a fixed percentage of turnover or gross receipts as taxable income, regardless of actual expenses. Section 44ADA provides a simplified taxation system for professionals covered under Section 44AA(1) of the Income Tax Act, 1961.
This benefit is available only to eligible professionals whose annual gross receipts do not exceed ₹50 lakh (raised to ₹75 lakh if at least 95% of receipts are through recognized banking channels).
Presumptive Taxation Limits (FY 2024-25 | AY 2025-26):
- Sec 44AD (Small businesses): ₹3 crore*
- Sec 44ADA (Professionals such as doctors, lawyers, engineers, etc.): ₹75 lakh*
*The enhanced limits apply only when 95% of receipts are received via recognized banking methods such as account payee cheque, demand draft, ECS, or other approved digital modes.
What is Section 44ADA of the Income Tax Act?
Section 44ADA is a special provision that allows small professionals to compute their taxable income under a simplified method. This section was introduced to extend the presumptive taxation scheme—earlier available only to small businesses—to certain specified professionals.
The objective of Section 44ADA is to reduce compliance requirements for small professionals and promote ease of doing business. Under this scheme, 50% of the gross receipts are deemed as profits or taxable income.
Who Can Opt for Section 44ADA?
The following assessees are permitted to choose this scheme:
- Individuals
- Partnership firms (excluding LLPs)
Professions Covered Under Section 44ADA
Professionals engaged in the following fields are eligible:
- Medical
- Legal
- Engineering
- Architecture
- Accountancy
- Interior decoration
- Technical consultancy
- Other notified professions such as:
- Movie artists: actors, directors, producers, editors, music directors, lyricists, singers, cameramen, choreographers, art directors, dialogue or screenplay writers, and costume designers.
- Authorised representatives: persons representing others before a tribunal or authority for a fee (excluding employees or accountants).
When Must Books of Accounts Be Maintained and Audited?
An assessee is required to maintain books of accounts and undergo audit under Section 44AB if:
- Gross receipts exceed ₹50 lakh in a financial year (raised to ₹75 lakh if cash receipts are within 5% of total receipts), or
- Income declared is less than 50% of gross receipts, and the total income exceeds the basic exemption limit.
Presumptive Income Calculation under Section 44ADA
To qualify for the presumptive taxation scheme under Section 44ADA:
- Gross receipts must not exceed ₹50 lakh in a year (limit extended to ₹75 lakh if cash receipts are within 5%).
- In the Income Tax Return (ITR), the taxpayer must declare 50% or more of the gross receipts as taxable income.
Examples for Presumptive Scheme for Professionals under Section 44ADA
Example 1:
Mr. Jatin works as a freelance interior decorator. During FY 2023-24, his gross receipts amount to ₹30,00,000. He spends ₹10,00,000 on office-related expenses like rent, conveyance, telephone, and travel.
Here’s a comparison of his taxable income under the two methods:
| Particulars | Normal Provisions | Presumptive Basis |
|---|---|---|
| Gross Receipts | ₹30,00,000 | ₹30,00,000 |
| Less: Allowable Expenses | (₹10,00,000) | (₹15,00,000) |
| Net Profit/Taxable Income | ₹20,00,000 | ₹15,00,000 |
Since under Section 44ADA, 50% of gross receipts are considered as profit, Mr. Jatin can opt for presumptive taxation and pay tax on ₹15,00,000 instead of ₹20,00,000.
Example 2:
Dr. Rahul, a medical professional, reports gross receipts of ₹55,00,000 in a year. Out of this, ₹2,50,000 is received in cash. She incurs annual professional expenses of ₹9,00,000.
Here’s how her taxable income would be determined:
| Particulars | Amount |
|---|---|
| Total Gross Receipts | ₹55,00,000 (within the enhanced limit of ₹75,00,000) |
| Cash Receipts (should be ≤ 5%) | ₹2,50,000 (≈4.5%, hence eligible) |
| Income Taxable under Presumptive Scheme | ₹27,50,000 (50% of ₹55,00,000) |
As the gross receipts are within the revised threshold of ₹75 lakh and the cash component is less than 5% of total receipts, Dr. Rahul is eligible for the presumptive taxation scheme. Therefore, her taxable income will be ₹27,50,000 under Section 44ADA.
Benefits of Section 44ADA
Opting for Section 44ADA provides professionals with several advantages:
- No requirement to maintain detailed books of accounts as prescribed under Section 44AA.
- No obligation to get accounts audited under Section 44AB.
Implications of Choosing Section 44ADA
When an assessee chooses the presumptive taxation scheme under Section 44ADA:
- All business expense deductions are automatically considered. Since 50% of gross receipts are treated as taxable income, the remaining 50% is presumed to cover all professional expenses.
- Such expenses may include costs like consumables, outsourced professional services, day-to-day operational costs, books, stationery, telephone charges, depreciation on equipment (e.g., laptops, printers, vehicles), and any other professional outlay.
- For tax purposes, the Written Down Value (WDV) of assets will be adjusted as though depreciation has been claimed every year. This adjusted WDV will be taken into account if the asset is later sold.
FAQs on Section 44ADA – Presumptive Taxation Scheme for Professionals
1. Which ITR form is applicable under Section 44ADA?
Taxpayers opting for presumptive taxation under Sections 44AD, 44ADA, or 44AE can file their returns using ITR-4 (Sugam).
2. Is partner’s salary deductible under Section 44ADA?
No. When a partnership firm opts for presumptive taxation under Section 44AD or 44ADA, remuneration or salary paid to partners is not allowed as a deduction.
3. Can deductions under Section 80C be claimed along with Section 44ADA?
Yes. Even if you opt for presumptive taxation under Section 44ADA, you can still claim deductions under Chapter VI-A such as investments under Section 80C, health insurance premiums under Section 80D, etc.
4. Can freelancers claim expenses like internet, rent, or travel under Section 44ADA?
No. Under Section 44ADA, 50% of gross receipts are automatically considered as expenses and the balance 50% is deemed as taxable income. Hence, freelancers cannot claim additional deductions for expenses like internet, office rent, or travel. However, they may still claim Chapter VI-A deductions (e.g., LIC premiums, medical insurance).
5. Do I need to maintain books of accounts under Section 44ADA?
No. Professionals who opt for presumptive taxation under Section 44ADA are not required to maintain detailed books of accounts under Section 44AA.
6. What is the exemption limit under Section 44ADA?
Professionals specified under the section can choose presumptive taxation if their gross receipts do not exceed ₹50 lakh (or ₹75 lakh, provided at least 95% of receipts are through banking channels).
7. Who is not eligible for Section 44ADA?
Professionals cannot opt for this scheme if:
- Their gross receipts exceed the prescribed limit (₹50 lakh/₹75 lakh).
- They wish to declare profits of less than 50% of gross receipts and their total income is above the basic exemption limit.
8. Can both Section 44AD and Section 44ADA be claimed together?
Yes. An individual with income from business (eligible under 44AD) and professional services (eligible under 44ADA) can avail both schemes simultaneously.
9. Do I need to pay advance tax under Section 44ADA?
Yes. If the total tax liability exceeds ₹10,000 in a financial year, advance tax must be paid. Under presumptive taxation, the entire advance tax must be paid in one installment by 15th March of the financial year. Non-payment attracts interest under Sections 234B and 234C.
10. Can LLPs opt for Section 44ADA?
No. Only individuals and partnership firms (excluding LLPs) can use Section 44ADA.
11. Is GST applicable to professionals under Section 44ADA?
Yes. If your gross receipts exceed the GST registration threshold, you must comply with GST provisions, even if you opt for presumptive taxation under Section 44ADA.
12. Can depreciation on assets be claimed separately under Section 44ADA?
No. Depreciation is considered included in the deemed 50% expense allowance. However, the Written Down Value (WDV) of assets will still be adjusted as though depreciation had been claimed.
13. Can a professional opt out of Section 44ADA in future years?
Yes. The scheme is optional. A professional may opt in or out of Section 44ADA in different years, depending on which is more beneficial.
14. Does opting for Section 44ADA affect loan eligibility?
Sometimes yes. Since profits are deemed at 50% of receipts, actual profit may appear lower than under regular accounting. Banks may require additional documentation for loan approval.
