ITR for Freelancers with 44ADA on TaxBuddy DIY: Step-by-Step
- Rajesh Kumar Kar
- Sep 12
- 10 min read
Section 44ADA of the Income Tax Act, 1961, is a simplified tax scheme designed for resident individuals, Hindu Undivided Families (HUFs), and firms (other than LLPs) engaged in the profession of writing, technical consultancy, accountancy, interior decoration, or legal services. This section allows eligible taxpayers to declare 50% of their gross receipts as income, and it is presumed that this amount includes all expenses. It is a convenient tax provision for freelancers, professionals, and small businesses, as it offers a straightforward method of calculating taxable income without the need to maintain detailed books of accounts. Lets delve into who can benefit from Section 44ADA, its key benefits, and how to file your Income Tax Return (ITR) using this provision on TaxBuddy DIY.
Table of Contents
What is Section 44ADA?
Section 44ADA was introduced as part of the Income Tax Act to simplify tax filing for professionals, especially those who operate on a small scale and do not maintain regular books of accounts. Under this section, eligible taxpayers can declare a presumptive income of 50% of their gross receipts or turnover, and this amount will be considered their taxable income. The remaining 50% is presumed to cover all expenses incurred for earning that income, such as office expenses, transportation, and other business-related costs.
Section 44ADA is specifically aimed at taxpayers engaged in professions such as accountancy, legal services, technical consultancy, medical services, and other professions as prescribed by the government. The key feature of this section is that it eliminates the need for detailed record-keeping, making tax filing simpler and more efficient for freelancers and small-scale professionals.
Who Can Use Section 44ADA?
Section 44ADA is available to resident individuals, Hindu Undivided Families (HUFs), and firms (other than Limited Liability Partnerships, or LLPs) who are engaged in a profession referred to in Section 44AA(1), which includes professions such as:
Legal services
Medical services
Technical consultancy
Interior decoration
Accountancy
Other professions that require professional expertise and qualify under the provisions laid out by the government.
The total turnover or gross receipts of the taxpayer should not exceed ₹50 lakhs in the financial year. If the gross receipts or turnover exceed this limit, the taxpayer will not be eligible to claim the benefits under Section 44ADA.
Key Benefits of Using Section 44ADA
Simplified Filing Process: One of the major advantages of Section 44ADA is the simplicity it offers in filing taxes. Taxpayers can declare 50% of their gross receipts as income, eliminating the need to maintain detailed books of accounts or submit complicated expense records.
No Need for Audits: Unlike other provisions of the Income Tax Act, taxpayers opting for Section 44ADA do not have to undergo a tax audit under Section 44AB. This is a significant benefit, particularly for freelancers or small businesses that operate with minimal overheads.
Fixed Deduction: Under this section, 50% of gross receipts or turnover is automatically deemed as income. This presumption covers all expenses related to the profession, including rent, salaries, utilities, travel, and other operational costs, making tax filing hassle-free.
Lower Taxable Income: By using Section 44ADA, taxpayers can save time and effort that would otherwise be spent on calculating individual expenses. The presumption of a 50% deduction typically results in a lower taxable income, which could mean a reduction in the tax burden.
Suitable for Small Professionals: Section 44ADA is a great option for small-scale professionals who do not maintain detailed accounts and wish to simplify their tax filing process while staying compliant with the tax regulations.
Step-by-Step Guide to Filing ITR under Section 44ADA on TaxBuddy DIY
Login to TaxBuddy DIY: The first step is to log into your TaxBuddy DIY account. If you don't have an account, create one using your email or mobile number.
Select the Right ITR Form: After logging in, select the ITR form that is applicable to you. For professionals opting for Section 44ADA, you will generally need to file ITR-4.
Choose Section 44ADA: During the filing process, you will be prompted to select the appropriate tax regime. Choose Section 44ADA from the list of options.
Enter Gross Receipts: You will need to enter the total gross receipts or turnover from your profession for the year. Remember, the gross receipts must not exceed ₹50 lakh to qualify for this provision.
Declare 50% Income: TaxBuddy will automatically calculate 50% of your gross receipts and declare it as your presumptive income. This amount is considered your taxable income under Section 44ADA.
Provide Other Details: Input other relevant details, such as any deductions under sections like 80C or 80D, if applicable. TaxBuddy will guide you through this process.
Review and Submit: After completing the form, review all the information entered. Ensure that everything is accurate and complete. Once reviewed, submit your ITR for processing.
Receive Acknowledgment: Once the ITR is successfully filed, TaxBuddy will provide you with an acknowledgment number, which serves as proof of your submission.
Important Tax Rules for Freelancers under Section 44ADA
Section 44ADA of the Income Tax Act provides a simplified tax scheme for freelancers in specified professions, such as legal, technical, medical, or accountancy consultancy. This provision was introduced to offer relief to small taxpayers who find it difficult to maintain detailed books of accounts or comply with the usual tax filing requirements. Section 44ADA allows eligible freelancers to declare a portion of their income as taxable income, while reducing the complexities of tax filing. Below are some key tax rules for freelancers opting for this section:
Presumptive Taxation
Under Section 44ADA, freelancers are allowed to declare 50% of their gross receipts as income. This means that the freelancer is presumed to have earned 50% of their total receipts as taxable income, and the remaining 50% is considered as business expenses, which need not be specifically accounted for.
This method simplifies the tax filing process as freelancers do not need to provide detailed accounts of their expenses or submit invoices and receipts for every expenditure incurred during the year. The 50% of gross receipts declared as income is treated as income for taxation purposes, and the freelancer is taxed accordingly.
For example, if a freelancer’s gross receipts for the financial year are ₹10,00,000, they would be required to declare ₹5,00,000 as income under Section 44ADA, which is then subject to the applicable income tax rates.
Exemption from Audit
One of the major advantages of Section 44ADA is the exemption from tax audit. Freelancers who opt for this section and have gross receipts of ₹50 lakh or less during the financial year are not required to undergo a tax audit, which is typically required for taxpayers whose income exceeds ₹2 crore or who have a turnover beyond specific limits set for business or profession.
This exemption from audit reduces the compliance burden for freelancers, eliminating the need for them to hire auditors or maintain complex accounting records, provided their income is within the specified limit.
No Need for Detailed Books of Accounts
Freelancers under Section 44ADA are not required to maintain detailed books of accounts. This is a significant relief for those who might struggle with bookkeeping or do not have the resources to employ accounting professionals. Unlike regular taxpayers who are obligated to maintain books of accounts and submit them to the Income Tax Department for scrutiny, freelancers using Section 44ADA are exempt from maintaining a detailed breakdown of their business expenses.
Instead, they simply need to declare 50% of their gross receipts as income and need not provide receipts for business expenses. However, it is important to note that freelancers still need to maintain a basic record of their income and expenses to meet the compliance requirements and for their own tracking purposes.
Tax Payment
Although Section 44ADA simplifies the tax filing process, freelancers are still required to pay taxes on the income declared under this scheme. The declared income (50% of gross receipts) will be subject to income tax according to the applicable tax slabs. Freelancers are taxed based on their taxable income, just like any other individual taxpayer.
Additionally, freelancers may be required to make advance tax payments if their estimated tax liability exceeds ₹10,000 in a financial year. If the freelancer’s income is primarily from business receipts and their total tax liability is anticipated to exceed ₹10,000, advance tax is payable in quarterly installments. The advance tax payment schedule for freelancers is as follows:
15% of estimated tax by June 15
45% of estimated tax by September 15
75% of estimated tax by December 15
100% of estimated tax by March 15
However, if the estimated tax liability is less than ₹10,000, freelancers are not required to pay advance tax. In such cases, tax payment can be made during the regular filing process after the end of the financial year.
Key Points to Remember for Freelancers Under Section 44ADA
Eligible Professions: Section 44ADA applies to freelancers in professions such as accountancy, technical consultancy, legal services, interior design, and similar fields.
Presumptive Income: 50% of the gross receipts will be considered as income for taxation purposes.
Exemption from Audit: Freelancers are not required to get their accounts audited as long as their turnover does not exceed ₹50 lakh in a financial year.
Tax Payment: Freelancers will pay tax on the declared presumptive income based on applicable income tax rates, and advance tax payments may apply if the estimated tax liability exceeds ₹10,000.
Simplified Filing: Freelancers do not need to maintain detailed books of accounts or submit proofs for business expenses. However, basic records should be maintained to ensure compliance.
Conclusion
Section 44ADA simplifies the tax filing process for freelancers and professionals, offering a straightforward way to calculate taxable income without the need for maintaining detailed accounts. By declaring 50% of their gross receipts as income, freelancers can save time, reduce their tax burden, and avoid the hassle of audits. TaxBuddy DIY provides an easy and efficient platform to file ITR under Section 44ADA, ensuring compliance with minimal effort. By following the simple step-by-step guide, freelancers can enjoy a smooth and hassle-free tax filing experience. For anyone looking for assistance in tax filing, it is highly recommended to download theTaxBuddy mobile app for a simplified, secure, and hassle-free experience
FAQs
Q1: Who is eligible for Section 44ADA? Section 44ADA is available to resident individuals, Hindu Undivided Families (HUFs), and firms (excluding Limited Liability Partnerships, or LLPs) engaged in certain specified professions. These include professions such as legal services, medical services, technical consultancy, accountancy, and other professions defined under Section 44AA of the Income Tax Act. To qualify, the gross receipts from the profession must not exceed ₹50 lakh during the financial year.
Q2: Can I claim deductions under Section 80C if I file under Section 44ADA? Yes, taxpayers filing under Section 44ADA can still claim deductions under Section 80C, 80D, and other sections such as 80E. While Section 44ADA offers a 50% deduction on gross receipts, other eligible deductions like those for insurance premiums, contributions to the National Pension Scheme (NPS), or interest on education loans can still be claimed. These deductions are calculated separately from the presumptive income under Section 44ADA.
Q3: Is it mandatory to file ITR if my gross receipts are less than ₹50 lakh under Section 44ADA? Yes, it is mandatory to file an Income Tax Return (ITR) under Section 44ADA if your gross receipts exceed the basic exemption limit, which is ₹2.5 lakh for individuals below 60 years of age. However, if your gross receipts are under ₹50 lakh, the process becomes simpler, as you can use the presumptive taxation scheme of Section 44ADA without the need for maintaining detailed books of accounts.
Q4: Can I switch from Section 44ADA to regular taxation? Yes, you can opt to switch from the presumptive taxation scheme under Section 44ADA to regular taxation if you choose. However, once you opt out, you will be required to maintain detailed books of accounts and undergo a tax audit if your income exceeds the prescribed limits. This switch gives you more flexibility in claiming business expenses, but it involves greater compliance requirements.
Q5: Do I need to maintain books of accounts if I use Section 44ADA? No, Section 44ADA does not require taxpayers to maintain books of accounts. Under this section, 50% of the gross receipts are presumed to be income, and it covers all business expenses. This simplified method eliminates the need for detailed accounting and reduces compliance costs, making it a suitable option for smaller professionals.
Q6: What happens if my gross receipts exceed ₹50 lakh? If your gross receipts exceed ₹50 lakh, you are no longer eligible to file under Section 44ADA and must file under the regular taxation scheme. This means you will need to maintain proper books of accounts and may be subject to a tax audit if your income exceeds the prescribed threshold. You will also need to calculate and claim expenses separately rather than using the 50% presumptive income method.
Q7: How does Section 44ADA benefit small professionals? Section 44ADA benefits small professionals by simplifying the tax filing process. Professionals with gross receipts under ₹50 lakh are allowed to claim a 50% deduction on their gross receipts as income, without the need to maintain detailed books of accounts or undergo a tax audit. This simplification saves time and reduces the administrative burden on small professionals, making tax compliance much easier.
Q8: Is there any penalty if I fail to file ITR under Section 44ADA? Yes, failing to file your ITR on time under Section 44ADA can result in penalties and interest on any unpaid taxes. The penalty for late filing can range up to ₹5,000, depending on when you file, and you will also be charged interest under Sections 234A, 234B, and 234C for delayed payments. It’s important to file before the due date to avoid these penalties.
Q9: Can I claim the 50% deduction even if my actual expenses are higher than 50% of my gross receipts? Under Section 44ADA, the presumption is that 50% of your gross receipts constitute your income, covering all business expenses. You cannot claim any additional deductions for expenses exceeding 50%. This section simplifies the process by eliminating the need to track and claim individual business expenses, even if your actual expenses are higher.
Q10: How do I file ITR under Section 44ADA on TaxBuddy? Filing ITR under Section 44ADA on TaxBuddy is simple. Log into the TaxBuddy platform, select ITR-4, and choose the applicable tax regime. Enter your gross receipts and any eligible deductions, and submit your return. TaxBuddy’s intuitive platform guides you through the process, ensuring a smooth filing experience without the need for complex calculations.
Q11: Can I use Section 44ADA if I am a sole proprietor? Yes, sole proprietors can use Section 44ADA if they meet the eligibility criteria, including the gross receipts limit of ₹50 lakh and being engaged in qualifying professions such as accountancy, legal services, or technical consultancy. This makes it easier for sole proprietors to comply with tax regulations without the need for detailed bookkeeping.
Q12: Can I claim a tax audit exemption under Section 44ADA? Yes, Section 44ADA provides a tax audit exemption for eligible taxpayers, as long as their gross receipts do not exceed ₹50 lakh during the financial year. This exemption makes it easier for small professionals to file their returns without the need for a detailed audit, reducing both time and costs.
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