Under the Income Tax Act, a presumptive taxation scheme has been notified for certain specified professionals who wish to reduce their compliance burden. This scheme is detailed under Section 44ADA of the Act and is available to professionals having gross revenue of up to Rs.50 lakh in a financial year.
Who are the professionals who can opt for this scheme?
Other than Limited Liability Partnerships (LLPs), resident individuals and partnership firms engaged in one of the specified professions can opt for the presumptive taxation scheme. The specified professions include doctors, Chartered Accountants, lawyers, architects, interior decorators, engineers, and technical consultants. In addition, persons from the film industry such as producers, actors, editors, directors and music directors, dance and art directors, cameramen, singers, lyricists, story writers, screenplay and dialogue writers, and costume designers can also opt for this scheme. Furthermore, besides the above, any other professional notified by the Central Board of Direct Taxes (CBDT) may choose to file their returns under this scheme.
How does the presumptive taxation scheme work?
Under the presumptive taxation scheme, the professional can offer 50% of his gross revenue as his taxable income and pay taxes according to his slab rates on the said income. However, if the professional has opted for this scheme, he cannot claim any professional expenditure as a tax deduction.
In cases where a professional chooses to report less than 50% of his receipts as income, he will have to get his accounts audited by a Chartered Accountant for that financial year. However, if the total income from all sources does not exceed the basic exemption limit, the professional need not get his accounts audited.
What is the advantage of opting for presumptive taxation?
One of the biggest advantages is that the person opting for this scheme is not mandated to maintain books of accounts under the Income Tax Act. This saves them the hassle of preparing books of accounts, keeping track of expense vouchers, etc. However, this exemption is only under the Income Tax Act. So a professional required to get registered under GST will still have to maintain his books of accounts.
If the professional has fixed assets used to carry out his profession, the written down value of the asset is deemed to have been calculated as if depreciation had been claimed and allowed in the relevant assessment year.
What is the return to be filed by persons opting for this scheme?
Professionals filing their taxes under the presumptive taxation scheme are required to file their returns using Form ITR-4.
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Athena is a globe-trotter whose aim is to see 30 countries before she’s 30. When she’s not travelling, she’s busy planning her next trip. She’s a Chartered Accountant by profession with a keen focus on GST. She writes by day and reads by night.