Taxable Profits & Gains under Section 44ADA:

According to Section 44ADA of the Income Tax Act, 1961, 50% of the total gross receipts of an eligible assessee engaged in any eligible profession during the previous year will be considered as profits and gains from such profession. Here are some important notes regarding this provision:

1. Treatment of Indirect Taxes:

   • Total gross receipts should not include indirect taxes for Section 44ADA calculation. For example, if the taxable value of receipts is Rs. 1,00,000 and CGST and SGST are Rs. 9,000 each, the total gross receipts for Section 44ADA would be Rs. 1,18,000.

2. Maintaining Books of Accounts and Audit Requirement:

   • A person engaged in an eligible profession who does not declare a profit of a minimum of 50% of total gross receipts must maintain books of accounts as specified in Section 44AA(1).
   • Accounts must be audited by a practicing Chartered Accountant, and the audit report must be furnished as required under Section 44AB.
   • This is applicable if the total income of the assessee exceeds the maximum amount not chargeable to income tax.

3. Optional Declaration of Taxable Profit:

   • An eligible assessee may choose to declare taxable profit more than 50% of total gross receipts.

Who is an Eligible Assessee?

A resident individual and resident Partnership Firm (not an LLP) can declare profits and gains on a presumptive basis under Section 44ADA, provided the total gross receipts from the profession do not exceed fifty lakhs rupees during the relevant previous year. LLPs (Limited Liability Partnership Firms) are not covered under this section.

Budget 2023 Changes:

Effective from the assessment year 2024-2025, the budget introduced changes for total gross receipts falling between rupees 50 lakh and 75 lakh. An assessee may declare income on a presumptive basis under Section 44ADA if total gross receipts from eligible professions do not exceed rupees 75 lakh, and the aggregate of amounts received in cash does not exceed 5% of total gross receipts during the relevant previous year.

Note: The receipt of an amount by a bearer cheque or a bearer bank draft is deemed to be a receipt in cash.

For total gross receipts not exceeding fifty lakh rupees during a previous year, the assessee may declare profit on a presumptive basis under Section 44ADA, irrespective of the percentage of total gross receipts received in cash or/and through banking mode.

What Professions are Eligible?

Professions referred to in Section 44AA(1) are eligible for Section 44ADA. These include:

• Legal
• Medical
• Engineering
• Architectural Profession
• Profession of Accountancy
• Technical Consultancy
• Interior Decoration
• Authorized Representative
• Film Artist
• Company Secretary
• Information Technology

Notes:

• A person engaged in any profession other than those referred to in Section 44AA(1) may declare profit on a presumptive basis under Section 44AD.
• No further deduction related to business expenditure under Sections 30 to 38 is allowed.
• The written down value of any asset of an eligible business is deemed to have been calculated as if the Assessee had claimed and been allowed the deduction for depreciation for each relevant assessment year in which incomes were declared on a presumptive basis under Section 44ADA.