Recruitment service- 44AD or 44ADA

[Shrikanth Parmarthy]

A client downloads resumes from job portals like Naukri and matches them with the job requirements provided by a vendor company. If a candidate’s profile aligns with the vendor’s needs, the consultancy firm forwards the resume to the vendor. Upon successful deployment of the candidate and confirmation of their probation period, the vendor company pays the consultancy firm a service fee equivalent to 8.33% of the candidate’s Cost to Company (CTC).

The question is whether this recruitment service model qualifies for presumptive taxation under Section 44AD or Section 44ADA of the Income Tax Act, 1961.

[TANAY GHILDIYAL]

As far as Sec 44ADA is concern it came in force to provide relief to some specific professionals. The covered list can be read as follows:- 

Persons engaged in the following professions are eligible for Section 44ADA:

• Interior decorators
• Technical consultants
• Engineering
• Accounting
• Legal
• Medical
• Architecture
• Other professionals, as mentioned below:
  • Movie artists include producers, editors, actors, directors, music directors, art directors, dance directors, cameramen, singers, lyricists, story writers, screenplay or dialogue writers and costume designers
  • Authorised representative means a person who represents another person for a fee before a tribunal or any authority constituted under any law. It does not include an employee of the person so represented or a person who is carrying on the profession of accountancy
  • Any other notified professional

As clearly evident your kind of service or business is not covered here. Although there may be different opinions but as per clear reading of the statute we can state that your profession is not covered here.

Moving forward to Section 44AD, yes you can show your Income under the presumptive taxation there but do keep in mind the following condition.

Conditions for Section 44AD

In an interesting move, a new condition was  taxpayers opting for presumptive income, i.e. –

You stand to lose presumptive tax benefits, if you do not continue them for at least 5 years.

Details of the additional condition

This additional condition has been added by substituting sub-section (4) of 44AD which is – If you are opting for the presumptive scheme, you must-

a. Declare your profits as per the presumptive scheme for at least 5 years in continuation.

b. If you decide to show and file profits as per regular business (ITR-3) before the end of these 5 years, you will lose presumptive benefits and be disallowed from presumptive taxation for the subsequent 5 years.

 

Tanay Ghildiyal

9873938771

 

AI Summary

Presumptive taxation under 44AD requires continuous five-year adherence, otherwise the taxpayer loses access to the scheme.
Recruitment consultancies do not qualify as the specified professions under Section 44ADA but may adopt presumptive taxation as business under Section 44AD; a key condition requires continuing presumptive declarations for five consecutive years, with loss of the scheme and five-year ineligibility if the taxpayer abandons the scheme prematurely.