Jigar M. Patel
International Tax Attorney
With a view to include small professionals and bring them on similar footing as small business enterprises, the presumptive taxation scheme for professionals was introduced in FY 2016-17 under Section 44ADA of the Income-tax Act.
Who can Opt for the Scheme?
Resident Individuals and Partnership Firms (other than LLPs) are eligible to opt for the presumptive taxation scheme, if they are engaged in a profession referred to in Sec. 44AA. Professionals engaged in legal, medical, engineering, architecture, accounting, technical consultancy or interior decoration can opt for the presumptive taxation scheme. Moreover, film artists (actors, directors, singers, story writers and the like), company secretaries and professionals engaged in information technology have also been notified as eligible to avail benefits under this Scheme.
Highlights of the Scheme
Eligible professionals can opt for the scheme if their gross receipts during the financial year do not exceed Rs. 50 lakhs (or Rs. 75 lakhs, if such receipts in cash or other than by account payee instruments or through digital mode do not exceed 5% of gross receipts) and a sum equal to 50% of such receipts, or as the case may be, a higher sum as claimed to be earned is shown as their taxable income.
Privileges and Obligations as in Section 44AD
AM Readers will recall the Tax Clues Write Up of 20th May, 2024, wherein various privileges and obligations as applicable in the case of presumptive income scheme for small businesses u/s. 44AD were explained. Similar provisions are applicable u/s. 44ADA as well.
Sugam Return – both for Sec. 44AD and Sec. 44ADA?
ITR-4, popularly known as Sugam, is a simple and easy to file income-tax return form for taxpayers opting for the presumptive income scheme either under Sec. 44AD or Sec. 44ADA. As part of the compliance under ITR-4, eligible taxpayers are required to show relevant information such as GSTIN number, turnover under GST return, information relating to capital, fixed assets, stock, secured & unsecured loans, closing cash and bank balance, etc.
Some FAQs under the Presumptive Taxation Scheme
Query: Whether the limit for turnover under Sec.44AD or 44ADA includes GST?
Reply: The Apex Court has in a number of cases held that in a business or profession, while computing the turnover or gross receipts, all indirect taxes applicable like excise duty, sales tax, VAT are to be included as part of such turnover / gross receipts. GST will also be required to be included on the same analogy and therefore, if the turnover including GST exceeds the prescribed limits, the taxpayer cannot take benefit of the presumptive taxation scheme.
Query: Turnover of my wholesale business is Rs. 1.20 crores and the profit from the same is Rs. 3 lakhs. My other income is Rs. 75,000 and I have made an investment of Rs. 1.50 lakhs under Sec. 80C. My total taxable income of Rs. 2.25 lakhs would thus be below the basic exemption limit of Rs. 2.50 lakhs. If I prefer not to show my profit at 6% / 8% u/s. 44AD, would I be required to undertake Tax Audit?
Reply: As per the provisions of Section 44AD, the requirement for audit would be applicable, only if both the conditions are satisfied, i.e., the profits of the business are less than 6% / 8% and the total income exceeds the maximum limit chargeable to tax. Though your profit is less than the prescribed percentage, but your income being below the taxable limit, you will not be governed by audit u/s. 44AB and can file Sugam (ITR-4) Return in your case.
