Quick Overview
- Section 44ADA is a presumptive taxation scheme for specified professionals.
- It allows professionals to declare 50% of gross receipts as taxable income.
- It applies to resident individuals, HUFs, and partnership firms (excluding LLPs).
- The gross receipts limit is ₹75 lakh (subject to cash receipt conditions).
- No need to maintain detailed books of accounts if opting for the scheme.
- No tax audit required if conditions are met.
- Advance tax can be paid in a single instalment by 15th March.
- Deductions under Sections 30 to 38 are deemed allowed.
- Suitable for professionals with lower actual expenses.
Section 44ADA of the Income Tax Act may be familiar to you in case you are a freelancer, consultant, doctor, lawyer, architect or any other professional. This provision provides a simplified form of taxation, which is the presumptive taxation scheme, where appropriate professionals are allowed to report income at a given percentage without having to keep detailed books of accounts.
This article provides an explanation of what Section 44ADA of the Income Tax Act is, its working, eligibility, limitations, examples, benefits and compliance requirements.
What Is Presumptive Taxation under the Income Tax Act?
Presumptive taxation is a simplified taxation system under the Income Tax Act, 1961, where the income is computed based on a presumptive basis but not on actual profits. Eligible taxpayers are now allowed to declare income at a stipulated percentage of turnover or gross receipts instead of keeping detailed books of accounts and calculating actual profits. This minimises compliance costs and streamlines the process of tax filing.
The provisions of presumptive taxation schemes are addressed in Sections 44AD, 44ADA, and 44AE of the Income Tax Act.
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What Is Section 44ADA of the Income Tax Act?
Income Tax Act, section 44ADA, is a presumptive tax scheme designed especially to apply to professionals. In this section, half the gross receipts will be regarded as taxable income, and the other half will be treated as expenses.
Under Section 44AA, professionals who choose this scheme do not need to keep detailed books of accounts,s and there is no tax audit requirement under Section 44AB in case the conditions are met.
Objective of Introducing Section 44ADA
The government introduced Section 44ADA to:
- Reduce compliance burden on small professionals
- Simplify income tax filing
- Encourage voluntary tax compliance
- Minimise disputes related to expense claims
It mainly benefits small and medium-sized professionals with moderate income levels.
Who Is Eligible for Section 44ADA of the Income Tax Act?
Not all taxpayers can opt for this scheme. Specific eligibility criteria apply.
Eligible Professionals Covered Under Section 44ADA
The scheme applies to resident individuals, Hindu Undivided Families (HUFs), and partnership firms (excluding LLPs) engaged in specified professions under Section 44AA(1), such as:
- Legal
- Medical
- Engineering
- Architectural
- Accountancy
- Technical consultancy
- Interior decoration
- Other notified professions
Freelancers and consultants in these fields can also opt if eligible.
Persons Not Eligible Under Section 44ADA
The following cannot opt for Section 44ADA:
- Limited Liability Partnerships (LLPs)
- Non-residents
- Companies
- Professionals with gross receipts exceeding the prescribed limit
- Individuals earning commission or brokerage income
Presumptive Taxation Limits Under Section 44ADA
To opt for Section 44ADA:
- Gross receipts must not exceed ₹75 lakh in a financial year.
- If cash receipts exceed 5% of total receipts, the limit reduces to ₹50 lakh.
If receipts exceed these limits, the professional must follow normal taxation provisions and maintain books of accounts.
Budget Updates Related to Section 44ADA
Recent budget amendments increased the turnover threshold from ₹50 lakh to ₹75 lakh, subject to the condition that cash receipts do not exceed 5% of total gross receipts. This update benefits digital professionals and freelancers who primarily receive payments through banking channels.
How Is Presumptive Income Calculated Under Section 44ADA?
Under Section 44ADA, taxable income is calculated at 50% of gross professional receipts. However, a higher income can be voluntarily declared if actual profits are more than 50%.
Calculation of Presumptive Income Under Normal Provisions
Under normal taxation:
- Actual income is calculated after deducting allowable expenses.
- Books of accounts must be maintained.
- A tax audit may be required if income exceeds specified limits.
Income Computation With Books of Accounts
Income = Gross Receipts – Actual Business/Professional Expenses
Allowable expenses include rent, salary, depreciation, utilities, and other business-related costs.
Calculation of Presumptive Income Under Section 44ADA Presumptive Scheme
Presumptive Income at 50% of Gross Receipts
Income = 50% of Gross Receipts
No need to claim separate expenses under Sections 30 to 38 because they are deemed allowed.
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Examples of Presumptive Taxation Under Section 44ADA
Let us understand Section 44ADA of the Income Tax Act with an example for better clarity.
Example 1: Professional Opting for Presumptive Scheme
Mr A is a resident architect with gross receipts of ₹40 lakh in FY 2025–26.
Under Section 44ADA:
Presumptive Income = 50% of ₹40 lakh = ₹20 lakh
This ₹20 lakh will be treated as taxable income under “Profits and Gains from Business or Profession.”
No need to maintain detailed expense records.
Example 2: Comparison With Normal Taxation
Suppose the actual expenses of Mr A are ₹10 lakh.
Under normal provisions:
Income = ₹40 lakh – ₹10 lakh = ₹30 lakh
Under Section 44ADA:
Income = ₹20 lakh
In this case, Section 44ADA is more beneficial because taxable income is lower.
Benefits of Section 44ADA of the Income Tax Act
Benefit |
Explanation |
Why It Matters for Professionals |
Simplified Tax Calculation |
Under Section 44ADA, 50% of gross professional receipts are deemed as taxable income. There is no need to calculate actual profit after deducting individual expenses. |
Saves time and effort in complex profit computation. Professionals can easily estimate tax liability in advance. |
No Requirement to Maintain Detailed Books |
Professionals opting for Section 44ADA are not required to maintain books of accounts as prescribed under Section 44AA, provided they declare at least 50% of gross receipts as income. |
Reduces paperwork, accounting costs, and administrative burden—especially beneficial for freelancers and solo practitioners. |
No Tax Audit (If Conditions Satisfied) |
If gross receipts are within ₹75 lakh (₹50 lakh where cash receipts exceed 5%) and income declared is 50% or more, tax audit under Section 44AB is not required. |
Avoids audit fees, professional charges, and detailed compliance procedures, leading to cost savings. |
Reduced Compliance Burden |
Advance tax can be paid in a single instalment by 15th March, and ITR-4 (Sugam) can be filed for reporting income under the presumptive scheme. |
Simplifies the tax filing process and reduces the risk of errors or missed compliance deadlines. |
Lower Chances of Scrutiny |
Since income is declared on a presumptive basis as per the government-defined percentage, disputes regarding expense claims are minimised. |
Reduces the likelihood of notices related to expense disallowances or profit estimation issues. |
Suitable for Freelancers and Small Professionals |
Designed specifically for resident professionals such as doctors, lawyers, architects, consultants, and technical professionals with moderate receipts. |
Ideal for individuals with relatively low overhead costs who want predictable and simplified taxation. |
Deductions Allowed and Not Allowed Under Section 44ADA
Category |
Provision Under Section 44ADA |
Detailed Explanation |
Practical Impact for Professionals |
Deductions under Sections 30 to 38 |
Deemed Allowed |
All business/professional expenses covered under Sections 30 to 38 (such as rent, salary, repairs, depreciation, etc.) are considered to be already deducted when declaring 50% of gross receipts as income. |
Professionals cannot separately claim these expenses. The 50% presumptive income automatically accounts for all such costs. |
Rent, Salary, Utilities, Office Expenses |
Not Separately Allowed |
Even if actual expenses are higher or lower, no additional deduction can be claimed once opting for Section 44ADA. |
If actual expenses exceed 50% of receipts, the scheme may not be beneficial. |
Depreciation on Assets |
Deemed Allowed |
Depreciation under Section 32 is treated as already claimed. However, the written-down value (WDV) of assets must still be adjusted as if depreciation had been allowed. |
Professionals cannot claim extra depreciation benefits separately while under this scheme. |
Chapter VI-A Deductions (e.g., 80C, 80D) |
Allowed |
Deductions under Chapter VI-A can be claimed from Gross Total Income after calculating presumptive income. Examples include Section 80C (PPF, LIC, ELSS) and Section 80D (health insurance premium). |
Helps reduce final taxable income beyond the presumptive 50% calculation. |
Health Insurance Premium (Section 80D) |
Allowed |
Premium paid for self, spouse, children, and parents can be claimed within prescribed limits under Section 80D. |
Provides additional tax savings even when opting for Section 44ADA. |
Investments and Donations (80C, 80G, etc.) |
Allowed |
Eligible investments, tuition fees, home loan principal repayment (80C), and approved donations (80G) can be claimed. |
Encourages tax planning and long-term savings while benefiting from presumptive taxation. |
Advance Tax and Compliance Requirements Under Section 44ADA
Professionals opting for Section 44ADA must:
- Pay advance tax in one instalment on or before 15th March.
- File Income Tax Return within the prescribed due date.
Failure to pay advance tax may attract interest under Sections 234B and 234C.
When Is an Assessee Required to Maintain Books of Accounts and Get an Audit Done?
Books of accounts and audit are required if:
- Gross receipts exceed ₹75 lakh (or ₹50 lakh if cash receipts exceed 5%).
- The professional declares income lower than 50%, and total income exceeds the basic exemption limit.
In such cases, tax audit under Section 44AB becomes mandatory.
Things to Remember While Opting for Section 44ADA
- Applicable only to specified professionals.
- Only residents can opt.
- 50% income is minimum; higher income can be declared.
- LLPs are not eligible.
- Once opted, consistency in reporting should be maintained.
Common Mistakes While Filing ITR Under Section 44ADA
- Incorrect reporting of gross receipts.
- Claiming additional expense deductions.
- Including the GST component incorrectly in receipts.
- Not paying the advance tax on time.
- Filing the wrong ITR form.
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Which ITR Form Is Applicable for Section 44ADA?
Professionals opting for Section 44ADA must file:
- ITR-4 (Sugam), if eligible.
If not eligible for ITR-4 due to additional income conditions, other applicable ITR forms may apply.
Conclusion: Is Section 44ADA Beneficial for Professionals?
Understanding what Section 44ADA of the Income Tax Act is crucial for small professionals seeking simplified tax compliance. It significantly reduces paperwork and compliance requirements while offering predictable taxation at 50% of gross receipts.
Section 44ADA is especially beneficial for professionals whose actual expenses are less than 50% of their gross receipts. However, professionals with high business expenses may find normal taxation more suitable. Careful comparison before opting is advisable to maximise tax efficiency.
Frequently Asked Questions
Can professionals claim expenses under Section 44ADA?
No separate expense deductions under Sections 30 to 38 are allowed because 50% of gross receipts is deemed to cover all expenses.
Is GST included in gross receipts for Section 44ADA?
If GST is charged separately and collected on behalf of the government, it is generally not included in gross receipts for presumptive taxation calculation.
Can I opt out of Section 44ADA once I opt in?
Yes, a professional can opt out in subsequent years. However, if the income declared is lower than 50% and exceeds the exemption limit, books and audit may be required.
Is a tax audit required under Section 44ADA?
No tax audit is required if income is declared at 50% or more and gross receipts are within the prescribed limits.
Who should not opt for Section 44ADA?
Professionals with high actual expenses exceeding 50% of receipts, LLPs, non-residents, and those exceeding turnover limits should not opt for Section 44ADA.
