What is the Presumptive Taxation Scheme?

Presumptive Taxation Scheme

With effect from 1st April 2017, a new section – 44ADA was introduced for simplifying the tax compliances of small professionals. Section 44ADA was introduced under the presumptive taxation scheme of which Section 44AD and 44AE were already a part.

The primary aim for the insertion of this section is the introduction of special methods and provisions for calculation of the income tax liabilities of professionals based on profit & gains from their services on a presumptive basis.

What is the Presumptive taxation scheme?

The presumptive taxation scheme was introduced to lessen the tax burden of businesses of small businesses, which had a turnover of less than INR 2 crores. Section 44ADA was introduced for reducing the tax liability of individual professionals with a limited income.

Section 44ADA- Overview

If an individual is a professional, a freelancer or a consultant, he/she can avail the benefits of this section and can pay the tax on half of his/her gross annual income by opting for the Presumptive Taxation Scheme. For availing the benefits of this section, the assesses should have a gross annual income of INR 50 Lakhs or less.

For example, Mr. A is engaged in the profession of practicing Company Secretary, and his gross annual income for the FY 17-18 is INR 30 Lakhs. Work-related expenses are INR 2 Lakhs, and unabsorbed depreciation outstanding is INR 5 Lakhs. The total taxable Income under Presumptive scheme & non-presumptive scheme would be as follows:
Particular Presumptive Scheme   Non-Presumptive Scheme
Income Rs.30,00,000/- Rs.30,00,000/-
Deduction Rs.15,00,000/- (Claim 50% Of Income) Rs.7,00,000/- (Work-related expenses)
Total Taxable Income Rs.15,00,000/- Rs.23,00,000/-

Applicability of Section 44ADA

Benefits of this section can be enjoyed by:

  • Resident engaged in the profession of:
  • Legal
  • Medical
  • Engineering
  • Architect
  • Accounting or technical consultancy
  • Interior decoration
  • Gross receipt of the assessee doesn’t exceed INR 50 Lakhs in a previous financial year.
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Exceptions Under Section 44ADA

Following exceptions are applicable on assesses taking benefit of Section 44ADA:

  • It is assumed that deduction allowed under the provisions of section 30 to section 38 has been applied and further and such deduction cannot be claimed further.
  • Depreciation, unabsorbed depreciation, and other deductions are assumed to have been claimed under this section.
  • An assesses who opts for the benefits under section 44ADA is not required to maintain books of account that are required to be maintained under section 44AA.
  • The assessee who opts for the benefits under section 44ADA is also not required to get his accounts audited as required under section 44AB.

The Due Date for Payment of Tax Under Section 44ADA

Under this presumptive taxation scheme, the taxpayer needs to pay 100% of the full advance tax on or before the 15th day of March of the financial year.

Earlier when the section was introduced in FY 2016-17, the advance tax was paid in four installments.

Income Tax Return Filing for the Assesses Having Income Under Profession

Income Tax Return of assesses who are eligible to declare their income from their profession on presumptive taxation basis under section 44ADA is filed in Form ITR-4 (Sugam). However, if the assessee maintains the books of account u/s 44AA and gets his books audited u/s 44AB, then filing of Form 4 is not mandatory. Such an individual can opt for filing ITR through regular return form, i.e., ITR-3 or ITR-5. 

Features of the Presumptive Taxation Scheme Under Section 44ADA

  • An individual should have income from any profession with income up to INR 50 Lakhs to claim the benefit of paying tax under section 44ADA.
  • An individual need not maintain books of account or get the audit done.
  • An individual has to pay 100% of the advance tax on the 15th of every March, with no requirement to pay tax in four installments. 
  • If an individual claims the deduction of this section of the entire 50% of income, he cannot claim the deductions under other sections.
  • An individual must be a Resident of India.
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Eligible Person for Filing of ITR-4

Following persons are eligible to file their income tax return in form ITR-4 for the FY 18-19:

  • Business under section 44AD or 44AE
  • Professional income under section 44ADA
  • Salary income up to INR 50 Lakhs.
  • Income from One House Property up to INR 50 Lakhs.
  • Income from other sources up to INR 50 Lakhs.

Steps to File ITR-4

Following is the simplified procedure to file an income tax return:

  • Go to online website and login to the user portal
  • Use PAN & password to login into the account
  • Click on the e-file menu and drop down will appear and then select “Income Tax Return.”
  • After this, it will take you to the next portal in which the details of AY, form type, etc. have to be selected. Select ITR-4 under the head “ITR form Number.”
  • This form can be submitted online through e-verification or even offline by uploading the XML sheet[1].
  • Complete the form and submit it for e-verification
  • Following e-verify option are there for e-verification:
  • E verification through registered DSC
  • Aadhaar OTP
  • EVC using the pre-validated bank account
  • EVC using pre-validated DEMAT account
  • Click on, continue and submit the final form by entering OTP or EVC.

Advantages of Filing Return under Presumptive Taxation Scheme

There are three benefits of filing tax under the scheme:

  • The ITR-4 form is relatively smaller & less complex compared to regular return forms.
  • Professionals can file their tax return on their own due to ease and simplicity of the form that save their huge amount of professional charges of consultants.
  • There can be lots of saving under this scheme. Entire 50% is exempted from income and tax is paid at the very minimal amount of income left after deduction.

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