BAJAJ BROKING
March 18, 2025
4 mins read
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.
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.
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.
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.
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
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.
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
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.
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.
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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Section 44ADA of the Income Tax Act provides a presumptive taxation scheme for professionals like doctors, lawyers, and architects with gross receipts up to ₹ 50 Lakh (revised limit of ₹ 75 Lakh). Under this scheme, 50% of total receipts are considered taxable income, simplifying compliance by eliminating the need for detailed bookkeeping and audits.
No, a taxpayer cannot avail of both Sections 44AD and 44ADA simultaneously for the same income. Section 44AD applies to businesses, while Section 44ADA is for specified professionals. However, if a taxpayer has both business and professional income, they may opt for each section separately for respective earnings.
Taxpayers opting for Section 44ADA of the Income Tax Act or 44AD should file ITR-4, also known as Sugam. This form is designed for individuals, Hindu Undivided Families (HUFs), and firms (excluding LLPs) declaring income under the presumptive taxation scheme, making tax compliance easier and reducing documentation requirements.
Self-employed professionals engaged in specified fields like medicine, law, accountancy, engineering, or technical consultancy qualify for Section 44ADA, provided their total gross receipts do not exceed ₹ 50 Lakh (revised limit of ₹ 75 Lakh) in a financial year. LLPs and companies are not eligible for this scheme.
No, Section 44ADA of the Income Tax Act is available only to resident individuals and partnership firms, excluding LLPs. An RNOR, who does not qualify as a full resident under Indian tax laws, is not eligible to avail of the benefits under this presumptive taxation scheme.
Small businesses, including individuals, HUFs, and partnership firms (excluding LLPs), can opt for Section 44AD if their annual turnover does not exceed ₹ 3 crore (if at least 95% of receipts are digital). This scheme simplifies tax compliance by allowing businesses to declare a fixed percentage of income.
Section 44AD allows small businesses to declare 8% (6% for digital transactions) of their turnover as taxable income. For example, if a trader has a turnover of ₹ 1 crore, they can declare ₹ 8 lakh as income and pay tax accordingly, without maintaining detailed accounts or audits.
Businesses engaged in trading, manufacturing, and service-oriented activities (excluding professionals, commission agents, and those earning agency income) can opt for Section 44AD.
A taxpayer opting for Section 44AD must continue under the scheme for five consecutive years. If they exit before this period, they cannot opt for it again for the next five years. This rule ensures consistency in tax compliance under the presumptive scheme.
Under Section 44AD, taxable income is presumed at 8% of turnover for cash transactions and 6% for digital receipts. The taxpayer does not need to maintain detailed books, but if they declare lower income, a tax audit becomes mandatory. This simplifies tax filing for small businesses.
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