Section 44ADA  Benefits –  Presumptive Tax Scheme for Professionals

As per the Budget 2025, individuals earning up to Rs. 12,00,000 will have zero tax liability for the FY 2025-26 (AY 2026-27) under the new tax regime. Here’s the breakdown:

Revised Income Tax Slabs for FY 2025-26 (AY 2026-27)

Income Tax Slabs

Tax Rate

Upto Rs. 4,00,000: NIL
Rs. 4,00,001 – Rs. 8,00,000: 5%
Rs. 8,00,001 – Rs. 12,00,000: 10%
Rs. 12,00,001 – Rs. 16,00,000: 15%
Rs. 16,00,001 – Rs. 20,00,000: 20%
Rs. 20,00,001 – Rs. 24,00,000: 25%
Above Rs. 24,00,000: 30%

With this revised tax structure, individuals with income up to Rs. 12,00,000 will have no tax liability due to an increased rebate of Rs. 60,000. For salaried individuals, the tax liability will be zero for incomes up to Rs. 12,75,000, thanks to the Rs. 75,000 standard deduction.

Note:

• The marginal relief on rebate remains applicable.
• The rebate is not applicable for income taxed at special rates (e.g., capital gains under section 112A).

To optimize benefits from presumptive taxation, understand its intricate details:

• Overview of Presumptive Taxation
• Introduction to Section 44ADA of the IT Act, 1961
• Eligibility for Section 44ADA
• Professions covered under Section 44ADA
• Maintenance of books and audit applicability
• Calculating Presumptive Income
• Examples of Presumptive Income
• Implications of choosing Presumptive Taxation

What is Presumptive Taxation?

Presumptive taxation is a scheme whereby the government assumes a certain percentage of an individual’s turnover/gross receipts as taxable income, regardless of actual incurred expenses. Section 44ADA introduces a simplified method of taxation for small professionals. It allows specified professionals with gross receipts under Rs. 50 lakh (increased to Rs. 75 lakh if at least 95% of the receipts are through recognized banking channels) to benefit from this scheme.

Presumptive Taxation Limits

For FY 2024-25 (AY 2025-26), the presumptive taxation limits are:

Category	Revised Limits
Sec 44AD: For small businesses	Rs. 3 crore*
Sec 44ADA: For professionals (doctors, lawyers, etc.)	Rs. 75 lakh*

*The increased limits are contingent upon 95% of receipts being through recognized banking channels (i.e., account payee cheques, demand drafts, electronic clearing systems, or other recognized modes).

What is Section 44ADA of the Income Tax Act?

Section 44ADA simplifies the calculation of taxable income for small professionals in specific scenarios. It was established to extend the presumptive taxation scheme to these professionals, reducing the compliance burden and fostering ease of doing business by presuming profits at 50% of gross receipts.

Assessees Eligible for Section 44ADA

Eligible assessees for Section 44ADA include:

• Individuals
• Partnership firms (limited liability partnerships are excluded)

Eligible Professions under Section 44ADA

Professionals in the following fields can benefit:

• Interior decorators
• Technical consultants
• Engineers
• Accountants
• Legal practitioners
• Medical professionals
• Architects
• Additional professionals including:
  • Movie artists (producers, editors, actors, directors, etc.)
  • Authorized representatives before legal authorities
  • Other notified professionals

When Must Assessees Maintain Books and Get Accounts Audited?

Assessees must maintain books of accounts and undergo audits under Section 44AB if they meet any of the following conditions:

• Gross receipts exceed Rs. 50 lakhs (increased to Rs. 75 lakhs if cash receipts are within 5% of total gross receipts)
• Income from the profession is claimed at less than 50% of gross receipts and total income exceeds the basic exemption limit.

Presumptive Income Calculation under Section 44ADA

To opt for the presumptive taxation scheme under Section 44ADA, the following conditions must be satisfied:

• Gross receipts should be ≤ Rs. 50 lakh.
• The limit increases to Rs. 75 lakh if cash receipts do not exceed 5% of total gross receipts.
• Taxpayers must record at least 50% of gross receipts as taxable income in their ITR.

Examples of Presumptive Scheme under Section 44ADA

Example 1:
Mr. Ram is a freelance interior decorator with total receipts of Rs. 30 lakhs for FY 2023-24 and annual expenses of Rs. 10 lakhs for rent, conveyance, etc. Here’s a comparison of his taxable income under normal provisions versus the presumptive scheme:

Particulars	Under Normal Provisions	Under Presumptive Basis
Gross Receipts	30 Lakhs	30 Lakhs
Less: Expenses Allowed	(10 Lakhs)	(15 Lakhs)
Net Profit / Taxable Income	20 Lakhs	15 Lakhs

In this case, Mr. Ram can opt for presumptive taxation by paying tax on 50% of gross receipts, making it beneficial for him.

Example 2:
Geeth is a medical practitioner with total gross receipts of Rs. 55,00,000 and cash receipts of Rs. 2,50,000, having incurred annual expenses of Rs. 9,00,000. Here’s how the net income is calculated under the presumptive scheme:

Particulars	Amount
Total Gross Receipt	Rs. 55,00,000 (within limit)
Cash Receipts (≤ 5% of Total)	Rs. 2,50,000
Income Chargeable to Tax under Presumptive Basis	Rs. 27,50,000 (50% of Gross Receipts)

Since the total receipts are below the revised limit, Geeth can optimally utilize the presumptive taxation scheme under Section 44ADA.

Benefits of Section 44ADA

Following Section 44ADA allows for the following benefits:

• No need to maintain books required under Section 44AA
• No requirement for accounts audit under Section 44AB

Implications of Choosing Section 44ADA

Choosing presumptive taxation means all business expense deductions are automatically allowed. Once profits are taxed at 50% of gross receipts, the remaining 50% is deemed to cover all business expenses. Qualifying expenses may include consumables, costs for services, daily expenses, depreciation on assets, and other professional expenses.

The Written Down Value (WDV) for tax purposes will be based on depreciation previously claimed.

Frequently Asked Questions

What is the exemption under Section 44ADA?
Professionals can pay tax based on their gross receipts under Section 44ADA if their total income does not exceed Rs. 75 lakhs.

Which ITR form is applicable for 44ADA?
Taxpayers must file their return using the ITR-4 form (Sugam) when opting for the presumptive taxation under sections 44AD, 44ADA, and 44AE.

Can 80C deductions be claimed under Section 44ADA?
Yes, taxpayers can claim Section 80 deductions even when opting for the presumptive scheme under Section 44ADA.

Are partner’s salaries allowed under Section 44ADA?
Remuneration deductions are not permitted if the firm’s income is taxed under the presumptive taxation sections.

Is audit mandatory for presumptive taxation?
Yes, if your income surpasses the designated limit after opting for presumptive taxation, auditing your books is required.

Who cannot opt for Section 44ADA?
Professionals claiming income less than 50% of gross receipts or exceeding gross receipt limits cannot utilize presumptive taxation.

Is it compulsory to opt for Section 44ADA for 5 years?
No, there are no such restrictions with Section 44ADA.

Can freelancers claim expenses like internet, rent, etc., under Section 44ADA?
Under Section 44ADA, freelancers must declare 50% of their gross income as their taxable income and are not allowed to claim further expenses, but they can deduct Chapter VI-A expenses for investments.

Do I have to pay advance tax if I choose the presumptive taxation scheme under Section 44ADA?
Yes, if your tax obligation exceeds INR 10,000, advance tax payments are necessary. These must be made on or before March 15 if using the presumptive scheme.

Can Section 44AD and Section 44ADA be claimed simultaneously?
Yes, an individual may benefit from both Section 44AD and Section 44ADA if they earn from both business and profession.

Will I need to maintain books of account if I choose presumptive taxation under Section 44ADA?
No, maintaining books of account is not required if you select the presumptive taxation scheme.