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Section 44ADA – Special provision for computing profits and gains of profession on presumptive basis.
There are good number of compliances under the Income Tax Act. These include maintaining a proper set of books of accounts, getting these books of accounts audited; filing income tax returns along with a full set of such books. A few schemes were framed under the Income Tax Act to give relief to small businesses. Schemes u/s 44AD, 44ADA and 44AE were framed keeping small businesses in mind. By opting for these schemes, a small businessman would no longer need to maintain a proper set of books of accounts required u/s 44AA. In this article we take a deeper look into section 44ADA.
Who can opt for the scheme u/s 44ADA?
The presumptive taxation scheme of section 44ADA is designed to give relief to small taxpayers engaged in specified professions. Unlike section 44AD, where only individuals, HUFs and partnerships can opt for the scheme, all assesses can opt for the scheme u/s 44ADA. However, generally speaking, when we think about professionals, only individuals come to mind.
What are the eligibility criteria for the scheme?
Only a person engaged in the following profession can opt for this scheme –
- Legal
- Medical
- Engineering or architectural
- Accountancy
- Technical consultancy
- Interior decoration
- Any other profession as notified by CBDT
The second condition for opting this scheme is that the gross receipts should not exceed Rs. 50 lakhs in the previous year. If your income exceeds Rs. 50 lakhs, you cant opt for this scheme.
What are the features and benefits under section 44ADA?
Books of accounts and profits –
Once under the scheme, you wont have to maintain books of accounts prescribed u/s 44AA. However, you will have to declare profits @ 50% of your gross receipts. This is a necessary condition. All expenses/deductions under sections 30 to 38 will deemed to have already given effect to and you wont be able to claim any other deduction and will have to pay tax on the remaining margin of 50%.
Audit –
If you don’t want to declare profits @ 50%, that can also be done. However, in order to declare lower profits, you would have to maintain books of accounts and get them audited.
Advance tax –
You would have to pay advance tax on or before March 15 of every year once under this scheme. Otherwise, Advance tax is payable on a quarterly basis.
No 5 year restriction –
Section 44AD has a restriction where once in the scheme and you decide to opt out, then you can’t opt in for the scheme again for another 5 years, However, there is no such restriction under section 44ADA.
Written Down value of assets –
Once you opt for the scheme, a separate deduction for partners remuneration/interest and depreciation will not be available. However, the written down value of any asset used in the business shall be calculated as if depreciation as per section 32 is claimed and has been actually allowed.
Should you opt for filing returns under section 44ADA?
Before making the decision for opting under the scheme, all the benefits and the conditions would have to be studied. If you find your margin after all expenses to be more than 50%, then this scheme would definitely be beneficial. However, even if your net margin is close to 50%, the reduction in compliances should also be kept in mind before making the decision. In the end however, you would have to make the choice taking everything into consideration.
If you need any help with respect to this scheme or any clarification on this matter, you can Contact Us.