Section 44ADA under Income Tax Act offers a presumptive taxation scheme for professionals, easing compliance and reducing bookkeeping burdens. With India’s freelance economy growing section 44ADA is thus a boon for small-scale professionals. What is it, and how does it work? Let’s break it down.
What Is Section 44ADA?
Introduced in 2016 under Income Tax Act, this section allows professionals to declare 50% of their gross receipts as taxable income without maintaining detailed books. It applies to resident individuals, HUFs, or partnerships (excluding LLPs) with annual receipts up to ₹75 lakh (raised from ₹50 lakh in Budget 2023). Eligible professions also include doctors, lawyers, engineers, architects, accountants, and consultants. For example, a lawyer earning ₹60 lakh declares ₹30 lakh as taxable income. In 2024, 25 lakh professionals opted for Section 44ADA, per Business Standard.
Benefits: Ease and Tax Savings:
This section simplifies taxation by eliminating the need for detailed accounting, saving time and costs. 90% of small professionals reduced compliance expenses. Professionals can claim 50% of receipts as expenses without proof, unlike actual expense deductions. It also lowers audit risks, as no books are required unless income is below 50% and exceeds the basic exemption (₹7 lakh in the new regime). In addition, it aligns with India’s 7% GDP growth, encouraging professional services, per IBEF.
Eligibility and Key Rules:
- Eligibility: Resident professionals (e.g., doctors, engineers) with gross receipts up to ₹75 lakh annually qualify, per CBDT.
- Taxable Income: Declare at least 50% of receipts as income, taxed at slab rates (up to 30%), per Income Tax rules.
- No Audit: No tax audit under Section 44AB unless income is below 50% of receipts and exceeds the basic exemption, per ET Wealth.
- ITR Filing: File ITR-4 via the e-filing portal by July 31 (FY 2024-25), per Section 139.
In 2024, ₹1,500 crore in tax notices were issued for incorrect presumptive declarations, per Business Standard. Professionals opting out must also maintain books and face audits if receipts exceed ₹75 lakh.
Who Benefits:
Section 44ADA benefits small-scale professionals like freelancers, consultants, and doctors, especially those with limited accounting resources. In 2024, 40% of ITR-4 filers were professionals under this scheme, per IBEF. Use software like ClearTax for accurate filing and consult a tax advisor for complex cases. Learn more at the Income Tax website.
Conclusion:
In conclusion, Section 44ADA under Income Tax Act in India simplifies taxation for professionals, reducing compliance burdens, but requires careful adherence to rules. It applies to resident individuals, HUFs, or partnerships (excluding LLPs) with annual receipts up to ₹75 lakh. Ready to streamline your taxes? Explore more tax insights now!
– Ketaki Dandekar (Team Arthology)
Read more about Section 44ADA here – http://cleartax.in/44ada