Quick Details About Section 44ADA

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.

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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.”

Depreciation

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.