In the realm of income taxation, Section 44ADA has emerged as a significant provision tailored for professionals. This provision aims to simplify the taxation process for eligible professionals, thereby reducing the burdensome intricacies often associated with traditional income computation methods. In this article, we delve into the essentials of Section 44ADA, shedding light on its eligibility criteria, specified professions, benefits, implications, and related aspects.
Eligibility Criteria and Specified Professions
Eligibility under Section 44ADA extends to resident individuals, Hindu Undivided Families (HUFs), and partnerships, provided they are engaged in specified professions. The range of professions encompassed by Section 44ADA is comprehensive, encompassing professions such as legal, medical, engineering, architecture, accountancy, interior decoration, technical consultancy, and others as notified by the government.
Additionally, other professionals notified for this purpose are movie artists, company secretaries, information technology professionals, and authorized representatives. Movie artists for this purpose mean actor, cameramen, director, music director, art director, dance director, editor, singer, lyricist, story writer, screenplay writer, dialogue writer, and dress designer.
Benefits of Opting for Section 44ADA
One of the primary advantages of choosing Section 44ADA is the simplification of the tax calculation process. Professionals falling within its ambit are permitted to declare a presumptive income, a percentage of their gross receipts or turnover, as their taxable income. This eliminates the need for meticulous record-keeping and detailed expense reporting that conventional tax computation methods require.
Moreover, professionals opting for this section are exempt from maintaining and auditing their books of accounts, saving them both time and effort. The presumptive income rate, set at 50% of the gross receipts, ensures a fair and standardized approach, promoting ease of compliance. Where the eligible assessee declares an income lower than 50% of the gross receipts and their total income exceeds the basic exemption limit, they will be obligated to maintain books of account, along with other necessary documents, and arrange for their auditing.
Implications and Other Considerations
Opting for Section 44ADA comes with several implications. All deductions for business expenses are considered to have been accounted for. With profits being taxed at 50% of the gross receipts, the remaining 50% is assumed to cover all the business expenses of the assessee.
Business expenses can comprise various items, such as consumables, daily operational expenses, staff salary, telephone charges, costs of services obtained from other professionals, rent paid for premises, expenditures on books and stationery, and depreciation on assets like laptops, vehicles, printers, surgical equipment, and other necessities essential for the profession.
The written down value (WDV) of assets for tax purposes will be computed as if depreciation had been allowed every year. This calculated WDV would serve as the asset’s value for tax purposes, particularly if the assessee decides to sell the asset at a later point.
What are the tax implications of opting for section 44ADA
If an assessee is opting for section 44ADA, he would not be allowed to make a claim for any expenses or depreciation separately. Any deductions which are allowable under sections 30 to 38 shall be deemed to have been already given full effect and no further deduction shall be allowed under these sections.
Further, in the case of a partnership firm, no separate deduction can be claimed in respect of interest or remuneration to partners.
An important facet to consider is the obligation to pay advance tax. Professionals availing the benefits of Section 44ADA are required to pay their advance tax liability in a single instalment on or before the 15th of March. This timely payment ensures a smooth flow of revenue for the government and avoids any last-minute financial stress on the professional.
Tax Deducted at Source-
Tax Deduction at Source (TDS) is another facet that warrants attention. Section 194J falling under Chapter XVII of the Income Tax Act, 1961 cast an obligation on the payer of professional fees to deduct tax at source. The tax shall be deducted at the rate of 10% of the sum paid or payable. Tax is required to be deducted when a single payment or aggregate payments made in the financial year exceed Rs.30,000. Payments made to professionals like doctors, accountants, engineers, or chartered accountants for their services are subject to tax deducted at source.
Turnover Limit u/s 44ADA changed by Finance Act, 2023
To benefit more professionals, ease of compliance and promote non-cash transactions, Finance Act, 2023 has increased the threshold limit for the presumptive scheme in section 44ADA with certain conditions applicable w.e.f. A.Y. 2024-25 and onwards.
Amendments made in Section 44ADA by Finance Act, 2023 prescribe a new turnover threshold of INR 75 Lakhs where the amount or aggregate amounts received in cash during the year does not exceed 5% of the gross receipts.
In simple words, if 95% or more of your turnover is through a banking channel (cheque/RTGS/NEFT/UPI/Card), you can opt for section 44ADA up to gross receipts of INR 75 Lakhs. Otherwise, the threshold limit of INR 50 Lakhs shall apply.
Section 44ADA stands as a commendable effort by the tax authorities to simplify the taxation process for professionals, offering them a streamlined method to calculate and declare their taxable income. The wide range of specified professions covered by this provision ensures its applicability across diverse fields.
In a dynamic financial landscape, Section 44ADA provides professionals with a viable option to navigate their tax obligations more efficiently. It is imperative for professionals to acquaint themselves with the nuances of this provision, allowing them to make informed decisions that align with their financial strategies and aspirations.
CA Pranay Jain is a young and aspiring Chartered Accountant. He qualified Chartered Accountancy Course in 2021 and has a well-established practice in various fields of taxation and auditing, with his core area of practice being in the field of litigation i.e., handling assessment and appeal-related matters and representing assesses before various tax departments.
He is also socially active on LinkedIn at linkedin.com/in/capranayjain
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