Presumptive Tax Scheme for Professionals
Updated: Aug 2
The Government of India brought in the Presumptive Taxation Scheme under Section 44ADA of the Income Tax Act to facilitate easier filing of tax returns by professionals. The Presumptive Taxation Scheme is a boon for those looking to streamline their tax compliance, offering a straightforward and hassle-free way to calculate and pay taxes. We will discuss in this article how the Presumptive Tax Scheme works for professionals, eligibility criteria, benefits, and how to opt for this scheme.
Table of Content
Latest Tax Updates
Budget 2023 presented major changes in presumptive taxation limits applicable from FY 2023-24 (AY 2024-25). The limits have been revised as follows:
Section 44AD (Small Businesses): Increased from INR 2 crore to INR 3 crore, on the condition that the cash receipts should not be more than 5% of the total receipts.
Section 44ADA (Professionals): Threshold increased from INR 50 lakh to INR 75 lakh, still subject to the 5% cash receipts condition.
What is the Presumptive Tax Scheme?
Under the Presumptive Tax Scheme of the Income Tax Act, if the gross receipts of a professional in a financial year do not exceed INR 50 lakh, the declarant is permitted to declare his income at the prescribed rate of 50% of the total gross receipts. It means that instead of maintaining detailed books of accounts and undergoing complex tax calculations, professionals just have to presume their income to be 50% of their total receipts and pay tax on that amount.
Eligibility Criteria for Presumptive Tax Scheme
The following conditions must be fulfilled for the Presumptive Tax Scheme under Section 44ADA by professionals:
Eligible Professions: The scheme applies to the following specified professions like legal, medical, engineering, architectural, accountancy, interior decoration, technical consultancy, and any other notified profession.
Gross Receipts: The total gross receipts or turnover of the profession should not exceed INR 50 lakh in a financial year.
Resident Taxpayer: The taxpayer must be a resident individual, Hindu Undivided Family, or a firm of partnership excluding LLP.
Benefits of the Presumptive Tax Scheme
Simplified Compliance: The obvious advantage of the scheme is the reduction in the complexity of tax compliance. Professionals avoid maintaining detailed books of accounts and preparing financial statements.
Lower Taxable Income: It allows professional or other individuals to show income from profession at 50% of gross receipts, which more often than not leads to lesser taxable income as compared to actual income.
Cost-Effective: It is cost-effective since books of accounts need not be maintained or audited, thus saving on heavy costs incurred for engaging an accountant or an auditor.
Ease of filing: Filing of tax returns becomes easy and fast, and professionals can focus more on their core activities than on formalities related to taxes.
How to Opt for the Presumptive Tax Scheme?
It's easy to opt for the Presumptive Tax Scheme. Here's a step-by-step process:
Declare Presumptive Income: While filing the Income Tax Return, declare your presumptive income while filing ITR-4 at 50% of your total gross receipts.
File ITR-4: In this scheme, file the tax return in ITR-4 (Sugam) form. See that all relevant sections and fields are correctly filled.
Pay Advance Tax: In case your tax liability goes above INR 10,000 you have to pay advance tax. The due dates of Advance Tax are 15th June, 15th September, 15th December, and 15th March of the Financial Year.
Points to Consider
Consistency: Once you have chosen the Presumptive Tax Scheme, you should be consistent with it, at least for a minimum period of 5 successive years. If you opt out of the presumptive scheme and switch over to the regular regime, you will not be eligible to opt for the presumptive scheme for the next 5 years.
Deductions and Exemptions: You cannot claim any further deductions for business expenses since, under the Presumptive Tax Scheme, income is presumed to have been arrived at after considering these expenses.
Multiple Businesses: In the case of multiple businesses or professions, the scheme applies separately to each business or profession. You have to ensure that none of the total gross receipts from any profession exceed INR 50 lakhs.
FAQ
Q1. What is the Presumptive Tax Scheme for professionals?
Presumptive taxation scheme under Section 44ADA of the Income Tax Act allows an eligible professional to declare 50% of gross receipts as income and pay tax on it which makes filing of tax return very simple.
Q2. Who can opt for the Presumptive Tax Scheme under Section 44ADA?
Under the presumptive tax scheme, the specified professionals: such as qualified medical professionals, lawyers, chartered accountants, architects, engineers, interior decorators, technical consultants, and others having gross receipts not more than INR 50 lakh in a financial year can be covered.
Q3. What are the benefits of opting for the Presumptive Tax Scheme?
Simplified tax filing, reduced compliance burden, no need to maintain detailed books of accounts, not required to undergo audit if income is declared as per the scheme.
Q4. How is income computed under the Presumptive Tax Scheme?
Under Sec 44ADA, 50% of the total gross receipts or turnover of the professional is considered as his income and he has to pay tax on such income.
Q5. Can a professional claim expenses if he opts for Presumptive Tax Scheme?
No, once a professional opts for the Presumptive Taxation Scheme, they cannot claim any further expenses as deductions since 50% of the gross receipts are considered as net income after expenses.
Q6. Are books of accounts required to be maintained under the Presumptive Tax Scheme?
No, the professionals under the Presumptive Taxation Scheme are not required to maintain detailed books of accounts as prescribed under Section 44AA.
Q7. What if the actual income of a professional is less than 50% of gross receipts?
Even in such a case, the professional has to declare 50% of gross receipts as income under the Presumptive Taxation Scheme.
Q8. Can a professional switch over the Presumptive Tax Scheme and regular taxation?
A professional can switch over the Presumptive Taxation Scheme and regular taxation. However, once the assessee opts out of the Presumptive Taxation Scheme, he cannot re-opt for the same for the next 5 assessment years.
Q9. How is advance tax to be paid under the Presumptive Taxation Scheme?
Under the Presumptive Taxation Scheme, professionals have to pay the entire advance tax on or before the 15th March of the financial year in one installment.
Q10. What if the Presumptive Taxation Scheme is not opted for even though eligible?
If eligible professionals do not opt for the Presumptive Taxation Scheme, they will need to maintain detailed books of accounts, get their accounts audited if their income exceeds the specified limits, and pay taxes based on their actual income and expenses.
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