Section 44ADA: A Simple Guide To Presumptive Taxation Scheme.

Section 44ADA: A Simple Guide To Presumptive Taxation Scheme

The Central Board of Direct Taxes (CBDT) has prescribed a presumptive taxation scheme of section 44ADA in the Finance Act, 2004. Section 44ADA provides a presumptive income tax based on income from specific sources. It applies to persons carrying on specified business activities and individuals who receive income from specified sources, as mentioned in section 44ADA(2A). The Presumptive Taxation Scheme of Section 44ADA shall be applicable from 1st April 2011.

The income tax department starts the scheme to provide relief to small taxpayers engaged in a specified profession. There is no need to maintain detailed books of accounts or to spend unnecessary time separating personal expenses from business expenses. The special scheme which reports your income is known as ‘Estimated Income Scheme for Small Professionals (Sec 44ADA)’.

Presumptive means that the person’s income is deemed and actual numbers are not reported. Therefore, the tax is paid on the assumed income, not the actual payment. An assessee in his income as per the Scheme is not required to maintain books of accounts (u/s 44AA) nor to get accounts audited (u/s 44AB). Earlier the businessman was only eligible to enjoy this scheme, but now professionals can also enjoy the benefits of this scheme. The scheme’s advantages lie in the ease and simplicity of return filing.

Also, Read-What is Advance Tax and Who is Liable to Pay Advance Tax?

Quick Details About Section 44ADA

What is 44ADA The section is for small professionals to provide relief by the simple method of taxation?
Who Can Opt?  Professionals whose annual gross receipts are under Rs.50 lakh in a year how
How Much Income Assumed 50% of the gross receipts
Assessees Eligible Individuals, HUFs, Partnership Firms (Not Limited Liability Partnership)
Updated in Union Budget 2021 Now it is only applicable to individuals, HUF or partnerships other than LLP. First, it was applied to all the resident professionals as per section 44AA
Benefits of 44ADA No need to maintain books of accounts, no requirement of having account audited

Applicability of Estimated Income Scheme for Small Professionals

The Estimated Income Scheme is a new service for the small professional class. Under this scheme, your income tax liability will be calculated on an estimated basis even if your actual income varies significantly in any given assessment year. If you are eligible to opt for this scheme, you would not have to file an income tax return (ITR), and you will automatically get an advance tax payment certificate from the Income Tax Department.

The Estimated Income Scheme, introduced in the Union Budget 2014-15, is meant for small professionals. It will enable them to pay a flat tax of 5% on their total income other than their salary or business income. The scheme will be available for professionals whose gross receipts do not exceed Rs 50 lakh per annum. An assessee may, however, declare a higher income in his return.

Income from any other business or profession (not covered under this scheme) and under other heads shall be computed separately as per standard provisions, then aggregated with the estimated income under the scheme, and subject to tax according to the legal provisions.

Must Check-TDS Rates Chart (AY 2022-23 FY 2021-22)

Professions Covered  u/s 44ADA

The assessee is resident and engaged in a profession referred to in section 44AA(1)

  • legal
  • medical
  • engineering
  • architectural profession
  • accountancy
  • technical consultancy
  • interior decoration
  • any other profession as is notified by the Board

Amendment in the Act:  The Finance Act, 2021 has amended the provisions of section 44ADA to define eligible assessee w.e.f. In the assessment year 2021-22, the benefit of section 44ADA is eligible only in the case of an assessee who is (a) an individual; and (b) a partnership firm other than a limited liability partnership.

Features of Presumptive Schemes for Professionals 

This scheme allows the small taxpayers to reduce their burden and help them to focus on their work only. The features introduced under section 44ADA are as below:

  • ¬ This scheme is available to software engineers, doctors, lawyers, chartered accountants, architects, graphic designers, interior decorators, etc. The person, those who are self-employed but not working for an employer.
  • ¬ Professionals can go for this scheme only if their total receipts in one financial year are Rs.50 lakh or less.
  • ¬ Income of the person should be assumed to be 50% of total receipts.
  • ¬ For income tax returns, details of all the expenses are not required to be provided.
  • ¬ Professionals are not required to keep formal accounting records.

Disallowance of Deductions under Business Head

All deductions under sections 30 to 38, including depreciation and unabsorbed depreciation, are deemed to have been already allowed, and no further deduction is allowed under these sections. Even salary/ interest to partners is not deductible under “Estimated Income Scheme for Small Professionals.”


The written down value is calculated, where necessary, as if depreciation as applicable has been allowed.

Moreover, it will be assumed that disallowance under sections 40, 40A, and 43B has been considered while calculating the estimated income @ 50 percent.

Declaration of Lower-Income Consequences

If an assessee declares his income to be lower than the deemed profits and gains stated above, then the following consequences are applicable.

  • The assessee will have to maintain the books of account as per section 44AA if his total income exceeds the exemption limit.
  • The assessee will have to get his books of account audited under section 44AB (irrespective of turnover) if his total income exceeds the exemption limit.

In case treating 50% income as expenses seems to be below, and your actual expenses are higher, you may not opt for this scheme as this scheme is optional. In this case, a person may continue to file their return in ITR-4 and can claim all the actual expenses. After claiming expenses, the remaining income tax is paid, but the person has to keep proper accounting records. As well as details of profit and loss account are also prepared.

Advance Tax Payment

The assessee declaring his income underestimated income scheme for small professionals shall be required to deposit the whole amount of advance tax for the financial year by the 15th of March of the year.

This new scheme (Estimated Income Scheme for Small Professionals)  of filing tax returns benefits many self-employed professionals such as doctors, graphic designers, software experts, freelance writers, etc.

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