The presumptive scheme under income tax is a popular scheme used by businesses and professionals. This system essentially reduces the burden of income tax compliance on micro and small businesses and professionals. The envisaged scheme for specific professionals was introduced in 2016. Presumptive Scheme allows taxpayers to presumptive their income as a certain % of their gross income or earnings Here we will discuss in detail the presumptive scheme available to professionals and which category of professionals can avail the scheme.
Presumptive scheme u/s 44ADA for professionals
- Presumptive Scheme u/s 44ADA is a simple scheme for crediting taxable income in case of professionals. The regime is optional, i.e. it is up to the practitioner to decide whether to opt for the assumed regime or whether to pay tax based on the books of accounts.
- Under Section 44ADA, Notified Professionals can opt for the presumptive regime where the taxpayer can offer 50% or more of his professional income as taxable professional profits. In this case, no separate claim of any expenditure including depreciation is allowed and the taxable profit (50% or more) as declared by the taxpayer is accepted as his net business profit. Example: Suppose your gross income from profession is Rs. 30 Lakhs, then you will have to report a net profit of Rs. 15 Lakhs or more under the deemed scheme irrespective of the amount of expenditure actually incurred.
- If the professional opts for the assumed regime, he is not required to keep books of accounts.
- However, if a professional claims that the profits are less than 50% while filing his income tax return, then he will be required to maintain books and also get a tax audit done.
Who can avail presumptive scheme u/s 44ADA?
- Only resident individuals or a partnership firm engaged in a particular profession can opt for the presumptive regime u/s 44ADA.
- Non-residents, LLP, HUF or company cannot opt for presumptive regime u/s 44ADA.
Further, the deemed scheme is available only to those taxpayers whose gross income or turnover from the profession does not exceed Rs. 50 million. In case your turnover from IT Freelance / IT profession exceeds Rs. 50 Lakhs, you cannot opt for section 44ADA. Rather, you will have to get your accounts audited as the Income Tax Act requires a mandatory tax audit in case the turnover from a notified profession exceeds Rs. 50 million.
Why does this scheme benefit to the professionals who opt for it?
In addition to allowing presumptive taxable income of 50% of gross receipts/revenues. It has the following advantages:
- Excludes from the keeping of accounting books
- Persons who have opted for the scheme can pay advance tax no later than March 15 of the financial year
- Unlike the five-year restriction for businesses opting for the deemed regime u/s 44AD, there is no restriction on non-participation in the scheme.
Can IT freelancer/professionals avail the presumptive scheme u/s 44ADA?
Yes, IT Professionals can avail Presumptive Scheme u/s 44ADA CBDT has time and again notified professions who can avail the benefits of Presumptive Scheme. They were informed:
- Appointment of authorized representative
- Profession of film artists (actor, cinematographer, director, music director, art director, dance director, editor, singer, lyricist, screenwriter, screenwriter, dialogue writer and dress designer)
- profession of company secretary
- the profession of information technology
What are the professions specified for the purpose of section 44ADA?
Section 44 of the ADA of the Income Tax Act specifies the following occupations that are eligible for the presumptive regime:
- Legal
- Medical
- Engineering or architectural
- Bookkeeping
- Technical consultancy
- Interior decoration
- Any other profession notified by CBDT
What are the benefits of the opting presumptive scheme for IT professionals?
Presumptive taxation system comes with the following benefits for IT freelancers/professionals:
- No need to keep books
- There is no need to pay quarterly tax advances, it is enough to pay in only one instalment by March 15 of the financial year at the latest.
- Easy calculation of taxable income and filing of tax returns
- No restriction on opting out of deemed regime in future unlike section 44AD (Deemed Dealer Scheme)
Conclusion
Presumptive Taxation Scheme u/s 44ADA is a very good option for IT Professionals / Freelancers as it reduces the compliance burden on professionals. Your time and costs associated with hiring accountants will be reduced to some extent. The above article focuses on section 44ADA which allows taxpayers to pay tax at a minimum rate. Entities enrolled in the section are also exempt from keeping accounting books.
