How to Avoid Audit by Opting for Presumptive Taxation (Section 44ADA)
- Farheen Mukadam
- Jul 31
- 8 min read
Section 44ADA of the Income Tax Act provides a simplified taxation scheme for professionals who are eligible for a presumptive taxation scheme. This provision is particularly useful for professionals like doctors, lawyers, accountants, and architects whose income is derived from providing services. Section 44ADA is designed to reduce the compliance burden for these professionals by allowing them to declare their income at a prescribed percentage of their total gross receipts. This provision eliminates the need for maintaining detailed books of accounts, and the income is taxed on a presumptive basis.
Table of Contents
What is Section 44ADA?
Section 44ADA is a provision introduced under the Income Tax Act, designed for professionals with gross receipts of up to ₹50 lakh in a financial year. It allows eligible professionals to opt for the presumptive taxation scheme, where 50% of the gross receipts or turnover is deemed to be the income of the taxpayer, and the same is charged to tax under the head "Profits and gains of business or profession."
This scheme simplifies the tax filing process for professionals by eliminating the need to maintain detailed books of accounts, undergo audits, and submit complex tax filings. Instead, professionals opting for this section can declare 50% of their receipts as income, simplifying the tax calculation and filing process significantly.
How Does Opting for 44ADA Help You Avoid Audit?
One of the major benefits of opting for Section 44ADA is that it helps professionals avoid the requirement of an audit, which is typically mandated for businesses and professionals with turnover or gross receipts above certain limits. Under normal circumstances, professionals who earn above ₹2.5 lakh in income or have gross receipts over ₹1 crore (for businesses) are required to maintain detailed books of accounts and undergo a tax audit. However, with Section 44ADA, professionals whose gross receipts do not exceed ₹50 lakh are not required to maintain such books or undergo an audit, provided they declare 50% of their receipts as income.
This provision significantly reduces the compliance burden for professionals, as it eliminates the need for an audit, which can be both time-consuming and costly. It simplifies the process, ensuring that small professionals can comply with tax regulations without the need for complex record-keeping or expensive audits.
Step-by-Step: Filing Under 44ADA to Avoid Audit
Filing under Section 44ADA is a straightforward process. Here’s a step-by-step guide to help professionals file their tax returns under this provision:
Eligibility Check: Ensure that your gross receipts do not exceed ₹50 lakh in the financial year. Section 44ADA is only applicable to professionals in fields such as accounting, legal services, medical professionals, technical consulting, etc.
Declare 50% of Gross Receipts as Income: Under this scheme, 50% of your gross receipts or turnover is considered your taxable income. This amount is automatically deemed to be your income for tax purposes, and no further deductions or expenses are required to be shown.
Fill Out the ITR Form: For professionals opting for Section 44ADA, you will need to file ITR-4, which is designed for individuals, Hindu Undivided Families (HUFs), and firms (other than LLPs) who are residents and who opt for a presumptive taxation scheme.
Enter Gross Receipts and Income Details: In the ITR-4 form, enter the total gross receipts or turnover under the relevant section. Then, declare 50% of this amount as income from business or profession, which will automatically be reflected in the tax calculation.
Submit Your Return: Once all the details are entered, submit the ITR form. Since you are opting for presumptive taxation, there’s no need to provide extensive details about expenses or deductions.
Tax Payment: Based on the declared income, the applicable tax will be computed and can be paid online. You will not be required to maintain a detailed record of expenses or provide supporting documents for deductions.
By following these steps, professionals can file their taxes smoothly without the need for an audit, ensuring compliance with tax laws in a hassle-free manner.
Key Latest Updates (Budget 2025)
In the 2025 Union Budget, several important updates were introduced for professionals opting for Section 44ADA. Some of the key highlights include:
Increase in the Presumptive Income Limit: The income limit for professionals eligible to opt for Section 44ADA has been increased from ₹50 lakh to ₹75 lakh in gross receipts. This provides more flexibility for larger professional practices to opt for the simplified scheme, helping to reduce their compliance burden.
Relaxation on Penalties: The budget also proposed easing penalties for professionals who fail to file within the due dates under Section 44ADA, thereby reducing the pressure of filing taxes on time.
Simplification of Forms: The government introduced new measures to simplify the filing process under Section 44ADA. A simplified form will be available for professionals, allowing them to file their taxes with fewer details, making the process faster and more efficient.
These updates are designed to provide more benefits to professionals and enhance the ease of doing business by reducing the regulatory burden and offering more time and flexibility for filing taxes.
Addressing Specific Questions
Q1: Can I file under Section 44ADA if my gross receipts exceed ₹50 lakh? No, Section 44ADA is only applicable to professionals whose gross receipts do not exceed ₹50 lakh in a financial year. If your receipts exceed this limit, you may need to consider other taxation schemes or opt for regular tax filing.
Q2: Are there any deductions available under Section 44ADA? Under Section 44ADA, no separate deductions for expenses are allowed, as 50% of the gross receipts are deemed to be income. However, you can claim deductions under other sections like 80C for investments.
Q3: Can I file under Section 44ADA if I provide services internationally? Yes, if your professional services are provided both domestically and internationally and your gross receipts are under ₹50 lakh, you can still opt for Section 44ADA. However, international transactions may require additional compliance related to transfer pricing and other regulations.
Conclusion
Section 44ADA offers a simplified taxation process for professionals, allowing them to file their returns with ease and avoid audits. This provision reduces the compliance burden and simplifies income tax calculations by allowing professionals to declare 50% of their gross receipts as income. With recent updates to the budget, more professionals can now benefit from this scheme, including those with higher gross receipts. TaxBuddy’s mobile app makes this process even more convenient, offering both self-filing and expert-assisted options. For professionals looking for a hassle-free filing experience,TaxBuddy mobile app is the ideal choice to simplify tax filing.
FAQs
Q1: Can I file under Section 44ADA if my gross receipts exceed ₹50 lakh?
No, Section 44ADA is specifically meant for professionals whose gross receipts do not exceed ₹50 lakh during the financial year. If your gross receipts exceed this limit, you are not eligible to file under Section 44ADA. In such cases, you would need to file your taxes under other applicable sections, such as Section 44AE or the normal provisions, depending on your business nature and accounting requirements.
Q2: Are there any deductions available under Section 44ADA?
No, under Section 44ADA, 50% of your gross receipts are deemed to be your income, and no further deductions related to professional expenses are allowed. This section simplifies the tax process by providing a presumptive income calculation, where the 50% of the gross receipts is automatically considered as income, eliminating the need for detailed expense reporting.
Q3: Can I claim deductions under other sections?
Yes, despite not being able to claim professional expenses under Section 44ADA, you can still claim deductions under other sections, such as Section 80C for investments in PPF, insurance premiums, and retirement funds. Other deductions like those for medical insurance (Section 80D) or interest on housing loans (Section 24) are also allowed. It's important to keep track of all eligible deductions to reduce your overall tax liability.
Q4: How can TaxBuddy help with Section 44ADA filings?
TaxBuddy simplifies the filing process under Section 44ADA by providing a straightforward, step-by-step guide for professionals. The platform helps ensure that your income is reported correctly, based on the presumptive taxation scheme, and that all tax liabilities are calculated accurately. TaxBuddy also allows you to file ITR-4 (the form used for Section 44ADA) effortlessly, ensuring timely submission and compliance.
Q5: What is the income limit under Section 44ADA?
The income limit for Section 44ADA is ₹50 lakh, meaning that professionals with gross receipts of ₹50 lakh or less can avail of this scheme. However, there is a proposal in the latest Union Budget to increase this threshold to ₹75 lakh, which, if passed, would allow more professionals to benefit from this simplified taxation scheme. This change would be a relief for a larger segment of the professional community.
Q6: What documents do I need to file under Section 44ADA?
Generally, professionals filing under Section 44ADA do not need extensive documentation. You only need to have accurate data regarding your gross receipts for the financial year. Since the scheme doesn't require detailed expense tracking, filing under Section 44ADA is more straightforward. However, keeping a record of your income and any applicable receipts is essential. TaxBuddy assists you in streamlining the filing process without needing to maintain complex financial records.
Q7: Is there a penalty for not filing under Section 44ADA?
If you qualify for Section 44ADA but fail to file under it or miss the filing deadline, you may face penalties and interest on any unpaid taxes. Penalties are calculated under section 234F, and you could be subject to additional charges if your filing is delayed. Filing under Section 44ADA can help reduce your tax burden, so it's essential to file on time and opt for the correct scheme.
Q8: Does Section 44ADA apply to all professionals?
Section 44ADA applies to certain professionals, including doctors, lawyers, architects, and accountants, among others. It is intended for those who are engaged in a profession rather than a business. If you are a professional offering services that are taxable under the Income Tax Act and have gross receipts under ₹50 lakh, you are eligible to file under this section. However, this scheme does not apply to businesses, manufacturers, or anyone providing services outside these defined professions.
Q9: Can I opt for Section 44ADA if I provide international services?
Yes, you can opt for Section 44ADA even if you provide international services, as long as your gross receipts for the financial year do not exceed ₹50 lakh. The section applies to professionals offering services both domestically and internationally, as long as they fall under the prescribed professions and meet the income threshold. This allows international service providers in eligible professions to simplify their tax filings.
Q10: How do I file under Section 44ADA?
To file under Section 44ADA, you need to use ITR-4, which is designed specifically for individuals, Hindu Undivided Families (HUFs), and businesses that opt for the presumptive taxation scheme. TaxBuddy makes this process seamless by guiding you through the ITR-4 filing steps, ensuring accurate reporting of income under Section 44ADA, and submitting your return in compliance with the latest tax laws.
Q11: Can I file under both Section 44ADA and other schemes?
No, you cannot file under both Section 44ADA and other schemes simultaneously. You must choose one scheme based on your eligibility and the nature of your income. If you qualify for Section 44ADA, you must opt for it, as it is a presumptive taxation scheme that simplifies tax filing. If your income or profession doesn’t meet the criteria for Section 44ADA, you may need to file under the regular tax provisions or another applicable scheme.
Q12: How can I get expert assistance for filing under Section 44ADA?
TaxBuddy offers expert assistance for filing under Section 44ADA through its mobile app and online platform. Tax professionals on TaxBuddy can guide you through the process, ensuring that your filing is accurate and timely. The platform offers personalized support, helping you maximize deductions and avoid common mistakes while ensuring compliance with tax regulations.
Comments