Presumptive Taxation – Section 44ADA

Concept of presumptive taxation provides small businesses and professionals, a simplified taxation mechanism, wherein the tax payers are exempted to maintain books of accounts and pay taxes on the gross receipt basis.  This taxation mechanism was brought about to facilitate the ease of doing business in India.

In the year 2016, specific provision was introduced to provide relief to professionals.  Section 44ADA of the Income-tax Act, 1961 applies to individuals, Hindu Undivided Family (HUF) and Partnership firms carrying out following professionals whose total gross receipt does not exceed INR 5 million:

  • Interior decorations
  • Technical consulting
  • Engineering
  • Accounting
  • Legal
  • Medical
  • Architecture

Other professionals, as mentioned below:

  • Movie artists includes a producer, editor, actor, director, music director, art director, dance director, cameraman, singer, lyricist, story writer, screenplay or dialogue writer and costume designers
  • Authorized representative means a person who represents another person for a fee before a tribunal or any authority constituted under any law. It does not include an employee of the person so represented or a person who is carrying on the profession of accountancy
  • Any other notified professionals

The eligible tax payer need not maintain their books of accounts and would not be subjected to tax audit as required under the Income-tax provisions.

Tax Mechanism:

Under Section 44ADA, income for tax purposes would be higher of the following:

  • 50% of the total receipts from the profession
  • Income offered by the tax payer from the profession

A person can declare income at lower rate (i.e. less than 50%), however, if he does so, and his income exceeds the maximum amount which is not chargeable to tax, then he is required to maintain the books of account as per the provisions of sections 44AA and has to get his accounts audited as per sections 44AB.

Tax payers opting for the said scheme, would have to pay advance tax by March 15 of the previous year.  In case advance tax is not remitted within the said timeline, then the tax payer shall be liable to pay interest under section 234C of Income-tax Act.

Note: Any amount paid by way of advance tax on or before 31st day of March shall also be treated as advance tax paid during the financial year ending on that day.

CBDT has issued business codes for income tax return forms from A.Y. 2019-20. It is of utmost importance to ensure correct business sector along with correct business code has been selected while filing the return of income. List of Business codes for various  profession has been mentioned below:-

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