Tax query: Application of presumptive taxation scheme for self-employed

I am a self-employed professional and will be using 44ADA for filing returns by declaring 50 per cent of my income for tax. Am I also eligible for other tax benefits – 80C, 80D, home loan interest, standard deductions, etc?

M S Ramesh

We assume that the self-employed individual’s profession is covered under the eligible criteria as per section 44AA(1) of Income Tax Act, 1961 (‘the Act’) i.e. legal, medical, engineering, or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette. We assume that the individual is treated as a resident for tax purposes in India.

As per the provisions of section 44ADA(1) of the Act, in the case of an eligible assessee (in this case a Resident Individual) whose total gross receipts do not exceed ₹50 lakh (this has been proposed to be increased to ₹75 lakh in the Budget) in a previous year, a sum equal to 50 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.”

When an assessee declares income at the rate of 50 per cent of the gross receipts under the said section, then he is not required to maintain the books of account in respect of specified profession.

Further, an assessee who claims that his profits and gains from the profession are lower than the profits and gains specified above, 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 section 44AA (1) of the Act and get them audited and furnish a report of such audit as required under section 44AB of the Act.

We assume that the individual would be meeting all the prescribed conditions and would be eligible to claim beneficial provisions of section 44ADA of the Act. Hence, his income will be computed on presumptive basis, i.e. @ 50 per cent of the total gross receipts of the profession.

A person who adopts the presumptive taxation scheme is deemed to have claimed all deduction of expenses. Any further claim of deduction is not allowed after declaring profit at the rate of 50 per cent.

While computing income as per the provisions of section 44ADA of the Act, separate deduction on account of depreciation is not available.

While presumptive income computed under section 44ADA is treated as net income for the business, an individual may still claim deduction available under chapter VI-A under the Act from presumptive income. Hence deductions under sections 80C, 80D, 80E etc. under the Act subject to the prescribed thresholds and conditions would be allowed.

The writer is a Partner with BDO India LLP

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