Tax Savings Under Section 44ADA of the Income Tax Act (2024)

As a working professional, dealing with the taxation system in India can be a daunting task. Beyond legal compliance, it also becomes necessary to be aware of the details of tax laws to file income tax returns accurately and optimise the applicable benefits efficiently.

One important section that benefits professionals like doctors and engineers is section 44ad of the Income Tax Act.

This guide delves into the details of Sec 44AD of the Income Tax Act and highlights how professionals can leverage it for tax savings in 2024.

What is 44AD in Income Tax?

Sec 44AD of the Income Tax Act simplifies the tax calculation process for small businesses. It provides a presumptive taxation scheme where eligible businesses can declare a certain percentage of their gross receipts as income, simplifying their tax compliance requirements. This section is particularly beneficial for small businesses as it reduces the need for maintaining detailed books of accounts and minimises the tax burden.

Also Read More to Know About taxation system in India

Eligibility Criteria for Section 44ADA of the Income Tax Act

You must meet the following criteria to be eligible for the presumptive taxation scheme under Section 44ADA of the Income Tax Act:

1. Income limit - The gross receipts or turnover from the profession should be less than ₹50 lakhs in a financial year. This income limit ensures that the scheme targets small and medium-sized professionals.
2. Eligible Assessees - The presumptive taxation scheme is available for the following types of assessees:
   • Self-employed professionals who meet the specified conditions.
   • Professional partnerships, except for limited liability partnerships.
3. Professional fields - The professional must be listed under the eligible categories specified by the Income Tax Act. The fields include the following:
   • Lawyers and legal consultants
   • Doctors, dentists and other medical professionals
   • Engineers and technical consultants
   • Architects
   • Chartered accountants, company secretaries and cost accountants.
   • Consultants providing technical services
   • Professionals involved in interior decoration
   • Movie industry professionals
   • Authorised representatives
   • Other professions notified by the Central Board of Direct Taxation (CBDT)
4. Income Tax Return Filing - Professionals opting for Section 44ADA of the Income Tax Act must file their income tax return using Form ITR-4. This form is specifically designed for individuals and firms opting for a presumptive taxation scheme under Sections 44AD, 44ADS and 44AE.

Budget 2023 Update for Section 44ADA of the Income Tax Act - Taxation limits

The Union Budget 2023 introduced significant changes to the presumptive taxation scheme under Section 44ADA of the Income Tax Act. Here is a detailed overview of the changes:

Note: The increased limits are contingent upon the condition that 95% of the receipts must be through recognised banking channels.

Benefits of Section 44ADA of the Income Tax Act

1. This section offers simplified tax filing, saving time and reducing errors.
2. 50% of gross receipts are deemed as profits which minimises the need to track expenses and maintain detailed accounting books.
3. The simple tax processes reduce the need to rely on costly tax advisers.
4. Lowers tax liability as 50% of gross receipts are considered profits, which benefits those with low net incomes.
5. The simple filing process encourages more professionals to comply with tax regulations.
6. The lighter compliance burden allows professionals to focus on expanding their businesses.
7. The standardised tax rules ensure fair taxation among all eligible professionals.

Conclusion

Section 44ADA simplifies tax compliance for professionals by allowing them to declare 50% of their gross receipts as profit, which reduces booking and tax filing complexities. This section helps professionals achieve tax efficiency while also supporting their financial security.

Filing your income tax returns accurately ensures significant tax savings and legal compliance, which is beneficial to your financial growth and stability.

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