PRESUMPTIVE TAXATION FOR PROFESSIONALS

Presumptive taxation

Presumptive taxation involves the use of indirect means to ascertain tax liability, which differ from the usual rules based on taxpayer’s accounts. Presumptive taxation allows you to pay your tax based on presumptive income. Meaning, you don’t really need to estimate your income by deducting your expenses from revenue. You can simply take a percentage of your total revenue and pay tax on that. Not having to maintain books of account could be one of the benefits of presumptive taxation. You cannot claim expenses and deductions from yourrevenue.

Presumptive taxation rules apply to almost all the professions and businesses which meet the turnover criteria. However, few businesses are excluded from using the presumptive taxation mode of calculating tax liabilities:

• Life insurance agency;
• Commission agency of any kind;
• The business of operating, hiring or leasing goods transports

Provisions for professionals

Section 44ADA of the Income Tax Act, 1961 (‘Act’ for short) (inserted from 01.04.2017) provides for the procedure for computation of income under presumptive basis. Under this method the assessee does not required to maintain the books of accounts and the accounts to be audited. Section 44ADA provides that notwithstanding anything contained in sections 28 to 43C, in case of an assessee, being-

• an individual; or
• a partnership firm other than a limited liability partnership

who is a resident in India, and is engaged in the following professions-

• Legal;
• Medical;
• Engineering;
• Architectural;
• Accountancy profession;
• Technical consultancy;
• Interior decoration; or

any other person notified by the Board in this behalf may compute income on presumptive taxation method. The Board notified authorized representatives, film artists, company secretaries and professional of information technology for this purpose. For availing this benefit the total gross receipts do not exceed fifty Rs. 50 lakhs in a previous year. A sum equal to fifty per cent 50% of the total gross receipts of the assessee in the previous year on account of such profession or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the assessee, shall be deemed to be the profits and gains of such profession chargeable to tax under the head “Profits and gains of business or profession”.

In case of an assessee where the amount or aggregate of the amounts received during the previous year, in cash, does not exceed 5% of the total gross receipts of such previous year the limitation amount shall be Rs. 75 lakhs instead of Rs. 50 lakhs. The receipt of amount or aggregate of amounts by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the receipt in cash. This came into effect from 01.04.2024.

In this method, the deduction allowable under the provisions of sections 30 to 38 shall be deemed to have been already given full effect to and no further deduction under those sections shall be allowed. The written down value of any asset used for the purposes of profession shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.

An assessee who claims that his profits and gains from the profession are lower than the profits and gains and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (1) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.

If partnership firm opts for presumptive income scheme under this section it will not be eligible to claim deduction of salary or interest paid to partners even if it is provided in the partnership deed.

Case law

In ‘Amitabh Verma v. Deputy Commissioner of Income Tax, Circle - 12(1) - 2021 (1) TMI 33- ITAT Hyderabad, the ITAT observed that it is not in dispute that the amount received by the assessee of Rs. 35,31,392/- is from consultancy services. For rendering such services, it is obvious that the assessee would have definitely incurred expenditure. Therefore it would be appropriate and just to estimate the expenditure and thereafter determine the taxable income of the assessee taking cue from the provisions of Section 44ADA of the Act. In the peculiar circumstances in the case of the assessee 50% of the gross consultancy receipts should be treated as the expenditure incurred by the assessee for earning income from consultancy services. Accordingly, ITAT directed Assessing Officer to grant deduction of Rs. 17,65,696/- (50% of Rs. 35,31,392/-) towards the expenditure incurred by the assessee towards earning income from providing consultancy services while computing the income of the assessee under the head ‘income from profession’ and treat the balance amount of Rs. 40,42,376/- as income under the head ‘salary’. It is ordered accordingly.

Computation of presumptive income from professions under Section 44ADA

Gross receipts limited to Rs. 50 lakhs (however if 2 is less than or equal to 5% of gross receipts then limit is extended to Rs. 75 Lakhs.) through any of the following modes-

1. Through account payee cheque or a/c payee bank draft or bank electronic clearing system received or prescribed electronic modes received before specified date;

2. Receipts in cash;

3. Any mode other than 1 or 2.

Income Tax Return

The professional who opts presumptive taxation under Section 44ADA he shall file income tax return in ITR-4-Sugam for the Assessment Year 2024-25. ITR-4 has six sections that one needs to fill before submitting the form in online mode and a preview page where you one can validateall your details filled. The sections are as follows:

• Personal Information
• Gross Total Income
• Disclosures and Exempt Income
• Total Deductions
• Taxes Paid
• Total Tax Liability

Due date of filing the income tax return is 31^st July 2024.

Conclusion

Presumptive taxation scheme is a good initiative to reduce your burden of tax processing and filing. This rule gives you an option to reduce your tax liabilities even when your business expenses are low.