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Section 44ADA of the Income Tax Act

The Indian tax system provides a simplified scheme for professionals to ease their tax compliance burden. Section 44ADA of the Income Tax Act offers a presumptive taxation scheme for eligible professionals, allowing them to declare income at a fixed percentage without maintaining detailed books of accounts. This scheme helps reduce tax liabilities and simplifies filing processes for small taxpayers.

What is 44AD in Income Tax?

Section 44AD is a presumptive taxation scheme primarily designed for small businesses. As per the new guidelines, It allows businesses with an annual turnover of up to ₹ 3 crore (as per Budget 2025) to declare income at a prescribed rate without detailed bookkeeping. However, this scheme does not apply to professionals, who fall under Section 44ADA instead.

Latest Updates on Section 44ADA from Budget 2025

Just like Section 44AD got a revised limit to ₹ 3 crore from ₹ 2 crore in the Union Budget 2025, so did Section 44ADA. Here’s what you need to know:

Parameter

Remarks

Earlier Limit

Revised Limit 

Eligibility

Professionals (like freelancers, lawyers, doctors, CAs, etc.) 

₹ 50 Lakh

₹ 75 Lakh*

Presumptive Income Rate

Professionals must declare a minimum of their total gross receipts as taxable income

50%

Unchanged

Note: The revised turnover limit of ₹ 75 Lakh will only apply if at least 95% of the total receipts are made through official banking channels. This includes payments via account payee cheques, demand drafts, electronic clearing systems, or other authorised digital modes.

The latest budget updates impact the applicability and benefits of Section 44ADA. It is essential for professionals to stay informed about any changes that may affect their tax planning.

Purpose of Section 44ADA

Section 44ADA simplifies the tax filing process for professionals by reducing the compliance burden and ensuring a standardised approach to income declaration. The key objectives include:

  • Reducing the need for extensive bookkeeping.

  • Offering tax relief to small professionals.

  • Encouraging more professionals to comply with tax laws.

Eligible Professions Under Section 44ADA

The scheme applies to specified professionals, including:

  • Legal practitioners

  • Medical professionals (doctors, dentists, etc.)

  • Engineers and architects

  • Accountants

  • Interior designers and decorators

  • Technical consultants

  • Film industry artists

  • Costume designers

  • Authorised representatives — individuals who represent others before a tribunal or legal authority for a fee (excluding employees of the represented person or practising accountants)

  • Any other professionals as notified by authorities

Presumptive Tax Rate Under Section 44ADA

  • Professionals covered under this section must declare at least 50% of their total gross receipts as taxable income.

  • If the actual income is lower, they must maintain detailed records and get their accounts audited.

Advantages of Presumptive Taxation Under Section 44ADA

Simplified Tax Filing Process

  • No need to maintain detailed books of accounts.

  • Reduced paperwork and compliance requirements.

Lower Tax Burden

  • Only 50% of the total receipts are considered taxable, leading to lower tax payments.

Potential for Savings

  • Taxpayers can retain more earnings since the declared income percentage is lower.

  • Savings on accounting and auditing costs.

Additional Read - Section 43B of the Income Tax Act

Exemptions Available Under Section 44ADA

  • No Requirement for Detailed Bookkeeping and Audit
    Professionals opting for Section 44ADA are not required to maintain extensive books of accounts or undergo tax audits, as long as they declare the prescribed percentage of their income. This significantly reduces compliance costs and administrative burden.

  • Exemption from Deducting Business Expenses Separately
    Since 50% of gross receipts are considered taxable income under this scheme, taxpayers do not need to maintain separate records for expenses such as rent, salaries, and operational costs. These expenses are already factored into the presumptive taxation model.

  • No Advance Tax if Total Tax Liability is Below the Threshold
    Taxpayers under Section 44ADA are required to pay advance tax in a single instalment by 15th March. However, if the tax liability is below this threshold, they are exempt from paying advance tax.

Applicability of the Presumptive Tax Regime for Salaried Individuals

  • Section 44ADA is designed for self-employed professionals, not salaried individuals.

  • However, individuals with both salary and professional income can avail of this scheme for their professional earnings. While TDS will be deducted on salary, they will need to declare their professional income under a separate header and the Section 44ADA benefits will apply only to that income.

Key Factors to Consider Before Choosing Section 44ADA

  • Income Threshold: Only applicable if gross receipts do not exceed ₹ 50 Lakh  (revised limit of ₹ 75 Lakh).

  • Tax Audit Requirement: If declaring income below 50%, a tax audit is mandatory.

  • Business vs. Profession: Only specific professions are covered; business owners must opt for Section 44AD instead.

Understanding Section 44ADA is crucial for professionals seeking tax benefits while ensuring compliance. Always consult a tax expert for personalised guidance on tax planning.

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Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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