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.

AI Summary

Consultancy Firms Matching Resumes Not Eligible for Section 44ADA; Section 44AD Applies with 5-Year Continuity Rule A consultancy firm providing recruitment services by matching candidate resumes with vendor requirements and receiving a service fee based on the candidate's CTC does not qualify for presumptive taxation under Section 44ADA, which is limited to specified professionals such as doctors, lawyers, architects, and technical consultants. However, the firm may opt for presumptive taxation under Section 44AD applicable to businesses, subject to the condition that the presumptive income scheme must be followed continuously for at least five years. If the taxpayer switches to regular income reporting before completing five years, they lose the benefit and are barred from opting for presumptive taxation for the next five years.