Section 44ADA (Presumptive Tax) Explained with Real Numbers (For Doctors, Lawyers, CAs)

If you’re a practising professional in India (doctor, lawyer, CA, architect, engineer, technical consultant, interior designer, etc.), Section 44ADA lets you pay tax on a presumptive basis - declare 50% of your gross receipts as income and skip detailed books and audit (subject to limits).

What is Section 44ADA?

Section 44ADA is a presumptive taxation scheme for certain professions. Instead of keeping full books and auditing, you can declare 50% of your gross professional receipts as taxable profit and file a simplified return.

Eligible professions (Section 44AA(1)):

Legal, Medical, Engineering/Architectural, Accountancy, Technical Consultancy, Interior Decoration, and other notified professions.

Who can opt in?

Resident Individuals and Partnership Firms (other than LLPs) carrying on a specified profession. HUFs/LLPs are not eligible for 44ADA.

Turnover limits (and the ₹75 L digital-receipts relaxation)

• Standard limit: Gross receipts ≤ ₹50 L.
• Enhanced limit: Up to ₹75 L if cash receipts are ≤ 5% of gross receipts (i.e., ≥95% via banking/UPI etc.).

Note: If your receipts cross the applicable 44ADA limit, 44ADA cannot be used. For professionals, tax audit under 44AB is generally triggered when gross receipts exceed ₹50 L, unless you’re validly within 44ADA. Once you exceed ₹75 L (digital condition met) or ₹50 L (if not), audit applies.

How income and deductions work under 44ADA

• Deemed profit = 50% of gross receipts.
• No further P&L expense claims are allowed on top of this (depreciation is deemed allowed in WDV). You can still claim Chapter VI-A deductions (e.g., 80C PPF/ELSS, 80D mediclaim).

Partnership firms & partner remuneration

If a partnership firm opts for 44ADA, separate deduction for partners’ salary/interest is not allowed while computing presumptive income (unlike under normal books). Many professionals miss this.

Compliance: Books, audit, advance tax, ITR form

• Books & audit: If you declare ≥ 50% profit under Section 44ADA, books of account and tax audit are not required. If you want to declare < 50% and your total income exceeds the basic exemption limit, books of account and tax audit (u/s 44AB) are required.
• Advance tax: Pay 100% by 15 March of the financial year. Amounts paid up to 31 March are still treated as advance tax. Delays may attract interest under Sections 234B/234C.
• ITR form: File ITR-4 (Sugam) if you meet its conditions (e.g., resident individual/partnership firm other than LLP, total income ≤ ₹50 lakh, etc.). Otherwise, file ITR-3.

Flexibility: Section 44ADA has no five-year lock-in like Section 44AD(4). You can opt in or out year by year.

Real-number scenarios

A. Eligibility by receipts mix

B. Should you choose 44ADA or normal books?

Rule of thumb: If your actual expense ratio is ≤ 50%, 44ADA usually wins (simpler, similar or lower taxable profit). If expenses are well above 50%, normal books may be better.

Note: Under 44ADA, no separate deduction is allowed for partner salary/interest; the 50% deemed profit subsumes expenses. Under normal books, P&L decides profit.

Common pitfalls

• Claiming extra expenses under 44ADA: Not allowed beyond the 50% deemed profit (use Chapter VI-A for 80C/80D deductions).
• Forgetting advance tax: Even under 44ADA, pay 100% by 15 March to avoid interest.
• Assuming LLPs/HUFs are eligible: They are not eligible under 44ADA.
• Crossing limits: If you exceed ₹50 lakh (or ₹75 lakh with ≥95% digital receipts), 44ADA is not available and audit likely applies.

Filing checklist:

• Confirm eligibility (resident, specified profession u/s 44AA(1), receipts within the applicable limit).
• Ensure digital receipts ≥ 95% if relying on the ₹75 lakh cap.
• Compute deemed profit @ 50%; plan Chapter VI-A deductions (80C/80D).
• Pay advance tax by 15 March.
• File ITR-4 (Sugam) if eligible; otherwise ITR-3.

FAQs

1. Can I switch between 44ADA and normal taxation each year?

Yes. Section 44ADA has no five-year lock-in like Section 44AD(4). You can opt in or out every year based on your numbers.

2. Do I need to keep books or get an audit under 44ADA?

No, if you declare ≥ 50% profit. If you want to report < 50% and your total income exceeds the basic exemption, books and tax audit apply.

3. What about depreciation and personal-tax deductions?

Depreciation is deemed allowed while carrying WDV forward. You may still claim Chapter VI-A deductions like 80C and 80D.

4. Can a partnership firm deduct partner salary/interest under 44ADA?

No. Separate deduction for partner salary/interest isn’t allowed when computing presumptive income under 44ADA.

5. What happens if receipts are ₹60 lakh with 10% in cash?

Cash > 5% fails the digital-receipts test, so the ₹75 lakh cap is unavailable. As you exceed ₹50 lakh, 44ADA is not allowed and audit likely applies.

Disclaimer:  This article is for educational purposes only and is not tax advice. Please consult a qualified Chartered Accountant for guidance specific to your situation.