Monday, March 7, 2016

Presumptive Taxation Scheme for Professionals in India

If you are a professional and your yearly income is above the taxable limit in India then here is a good news for you.

Government of India in the finance budget 2016 extended presumptive taxation scheme for professionals too by insertion of new section 44ADA.

Upto now only business people are allowed to presumptive taxation scheme by declaring 8 percent of gross receipts as their net income. Business professionals who opt for presumptive taxation scheme (PTS) need not required to maintain account books and also no need of auditing.

From financial year 2016-2017 (or assessment year 2017-2018) onwards professionals too are covered under this scheme. Professionals whose gross receipts are upto 50 lakhs can opt for this scheme.

Professionals have to declare 50 percent of their gross receipts as net income in order to qualify for this scheme. No depreciation is allowed and also no other expenses are allowed for additional deduction.

Professionals who opt for this scheme need not required to maintain account books and also no need of auditing.

If you want to declare less than 50 percent of income then remember maintaining books and auditing is compulsory.

Generally professionals use ITR 4 form to file income tax return. This form contains really a long list of pages, and filing is really a cumbersome procedure. Whereas PTS form ITR 4S (also known as SUGAM) is very short only 3 or 4 pages and filling this form is very easy and require a less time as compared to ITR4.

Here is the complete description of the new section 44ADA.

After section 44AD of the Income-tax Act, the following section shall be inserted with effect from the 1st day of April, 2017, namely:—

‘44ADA.(1) Notwithstanding anything contained in sections 28 to 43C, in the case of an assessee, being a resident in India, who is engaged in a profession referred to in sub-section (1) of section 44AA and whose total gross receipts do not exceed fifty lakh rupees in a previous year, a sum equal to fifty per cent. of the total gross receipts of the assessee in the previous year on account of such profession or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the assessee, shall be deemed to be the profits and gains of such profession chargeable to tax under the head “Profits and gains of business or profession”.

(2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed.

(3) The written down value of any asset used for the purposes of profession shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.

(4) Notwithstanding anything contained in the foregoing provisions of this section, an assessee who claims that his profits and gains from the profession are lower than the profits and gains specified in sub-section (1) and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (1) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.

Generally professionals dont have much expenses as compared to business people because in business we have to purchase goods and apply some margin and then we have to sell them for some profit.

Whereas professionals use their intelligence as investment and earn income. Hence declaring 50 percent of their receipts as income is a welcome idea because expenses are very low for professionals.

Ofcourse choosing Presumptive Taxation Scheme is just an option and if anyone thinks that their income is too low, they can always consider filing ITR 4 where you are allowed every deduction and depreciation cost as usual.

Hope this is really a good news for professionals who are earning income via freelancing, blogging, website developing, earning via AdSense, affiliate commission earnings, online teaching, legal professionals, medical professional like Doctors, engineering or architecture professionals, profession of accountant (CA) or technical consultancy or interior decoration or advertising, Film artists like actor, cameraman, music director, singer,editor, dance master, writer etc.

In short every occupation or vocation where intellectual skill is applied can be treated as profession.

As per the Income Tax Act, an income from any profession that involves work, which requires you to use a skill, which is an intellectual skill or is a manual skill, then such income will be taxable under the head 'Profits and Gains of Business and Profession'.

Hope this post is useful for all professionals. If you have any query, post a comment below.