How to compute taxable profits and gains of profession on presumptive basis – Section 44ADA

With effect from assessment year 2017-18, government has introduced section 44ADA to allow certain professional to calculate their tax liability based on their estimated or presumptive income.

As stated in our earlier articles, benefits of presumptive taxation scheme can also be availed by a person who is in the business of plying, hiring or leasing of goods carriage and other businesses satisfying conditions of section 44AE and 44AD respectively.

A new section 44ADA has now extended this presumptive taxation scheme benefits to certain professionals with effect from assessment year 2017-18.

Who can avail benefits of presumptive taxation scheme U/S 44ADA

As per section 44ADA, indian residents who are engaged in a profession referred to in section 44AA(1) can claim benefits of section 44ADA.

Section 44AA(1) referred to professionals practicing in following fields ;

  • Legal
  • Medical
  • Engineering
  • Architectural
  • Accountancy
  • Technical consultancy
  • Interior decorations
  • Any other profession as is notified by the board in the official gazette

Following professions are notified by the CBDT;

  • Authorized representative
  • Film artist
  • Company secretaries
  • Information technology

A person practicing any of the above profession can avail the benefits of section 44ADA if total gross receipts do not exceed Rs. 50,00,000 during the previous year. This means, section 44ADA provisions can be availed by a lawyer, doctor, engineer, architect, chartered accountant, cost accountant, interior designer, company secretaries, film actor, information technologies professionals and other professionals falling under the above professions if total gross receipts from their professional services do not exceed Rs. 50,00,000.

How to calculate estimated or presumptive income from your profession U/S 44ADA

If you are satisfying conditions of section 44ADA, then a sum equal to 50% of the total gross receipts of the assessee in the previous year on account of such profession shall be deemed to be the profits and gains of such profession.

Such profit and gain will be chargeable to tax under the head “profits and gains from business or profession”.

You can also claim higher profits than the limit of 50% as stated above. In such cases, the higher profit as declared by you will be considered as deemed income.

For instance, if you have claimed 60% as your profit and gains from your profession, then it will be considered as estimated profit instead of the minimum limit of 50% as stated in section 44ADA.

For example, if Mr. XYZ being a proprietor of a professional firm XYZ & Co has a gross receipts of Rs. 10,00,000, then he can declare a minimum of Rs. 5,00,000 as his profit and gains from such profession to avail the benefits of section 44ADA. He can also declare any profit higher than the limit of Rs. 5,00,000 and still avail the benefits of section 44ADA.

Benefits  and consequences of Section 44ADA

If you calculate your professional income under section 44ADA, then you can not claim any deduction for your expenses under section 30 to 38 of income tax act, 1961. It will be deemed to have been allowed to you.

For each relevant assessment year in which the profession has claimed presumptive taxation scheme benefits under section 44ADA, it will be treated as depreciation for the same year has been allowed.

If you are opting for lower income than the limit specified under section 44ADA, then books of accounts as specified under section 44AA has to be maintained for the profession and books of accounts are required to be audited under section 44AB of income tax act, 1961.

After audit under section 44AB, you are required to file the audit report along with form 3CD, balance sheet and profit and loss account with income tax department on or before the due date of filing.

is a fellow member of the Institute of Chartered Accountants of India. He lives in Bhubaneswar, India. He writes about personal finance, income tax, goods and services tax (GST), company law and other topics on finance. Follow him on facebook or instagram or twitter.