Section 44ADA – Presumptive Taxation for Professionals (AY 2025–26)

 

Legal Framework

• Introduced by Finance Act, 2016, Section 44ADA provides a simplified scheme of presumptive taxation for specified professionals.

• Applicable for Resident Individuals, HUFs, and Partnership Firms (excl. LLPs).

• Based on Section 44AA(1) professions.

Threshold Limits

• Normal Limit: ₹50 lakh gross receipts.

• Enhanced Limit (AY 2024–25 onwards):

  • Increased to ₹75 lakh only if at least 95% of receipts are in non-cash mode (bank transfers, UPI, digital payments, account payee cheque/draft).

  • If cash receipts exceed 5%, limit rolls back to ₹50 lakh.

Presumptive Income Rate

• 50% of gross receipts deemed as income.

• Assessee may declare higher income if actually earned.

• No further deductions allowed for expenses u/s 30–38.

• Depreciation deemed allowed → WDV adjusted automatically.

Who Can Opt? – Eligible Professions

Section 44AA(1) read with CBDT’s updated Nature of Business/Profession Codes (effective AY 2025–26):

Eligible Professions (Illustrative)

• Legal, medical, engineering, architectural, accountancy, interior decoration, technical consultancy.

• Film artists, company secretaries, information technology professionals.

• Finance Act 2023 clarification & CBDT Notification (ITR-3/4 AY 2025–26):

  • Social Media Influencers

  • Online Content Creators / YouTubers

  • Digital marketing professionals

  • Freelance IT consultants & coders

  • E-learning/EdTech tutors on digital platforms

Note: These are mapped under new “professional codes” introduced in AY 2025–26 ITR forms. CBDT has clarified that influencers, bloggers, YouTubers, etc., qualify as “professional services” (not business), hence covered under 44ADA if receipts ≤ ₹75 lakh with 95% digital.

Exclusions & Grey Areas

• Not eligible:

  • LLPs.

  • Non-residents.

  • Businesses (trading, manufacturing, commission agency, brokerage).

• Grey zone clarified:

  • Influencers & YouTubers → treated as professionals (eligible).

  • E-commerce resellers / affiliate marketers → treated as business (eligible only under 44AD, not 44ADA).

Compliance & Audit Checkpoints

• If declare ≥ 50% → no books/audit required.

• If declare < 50% → books u/s 44AA + audit u/s 44AB mandatory (if income > basic exemption).

• Audit threshold linked to digital receipts:

  • If >95% digital receipts, audit only if income < 50% and total income > exemption limit.

  • Otherwise, audit triggered earlier.

Tax-Saving & Benefit Scenarios

• Scenario A – Consultant earning ₹45 lakh (all digital)

  • Presumptive income = ₹22.5 lakh.

  • Taxable after slab deductions (standard deduction not available, but 80C, 80D, etc., apply).

• Scenario B – Influencer earning ₹70 lakh (97% digital)

  • Eligible under enhanced limit.

  • Presumptive income = ₹35 lakh.

  • Audit not required if ≥ 50% declared.

• Scenario C – Lawyer earning ₹65 lakh (10% cash)

  • Cash >5% → eligible limit only ₹50 lakh.

  • Needs regular books & audit if exceeding.

Salient Features / Quick Checklist

✅ Applicable to resident professionals only.
✅ Receipts ≤ ₹75 lakh if 95%+ digital, else ₹50 lakh.
✅ Presumptive income = 50% of receipts (higher allowed).
✅ No separate expense claim (rent, staff, internet, etc. deemed allowed).
✅ WDV adjusted for depreciation automatically.
✅ Influencers, digital creators, freelancers now expressly included.
✅ If income shown <50% and taxable above exemption → audit mandatory.
✅ Switching allowed year-to-year (no 5-year lock-in like 44AD).

Practical Tax Planning

• Best suited for: Influencers, doctors, lawyers, designers, IT freelancers, consultants with moderate expenses (<50%).

• Not suited for: High-expense professionals (e.g., hospitals, studios, ad agencies with big overheads).

• Combine with:

  • Deductions u/s 80C, 80D, 80G.

  • Regime choice (Old vs New) each year for optimal tax outflow.

• Record-keeping tip: Even if not mandatory, maintain invoices & digital payment proofs to support the 95% digital condition.

•