How to File ITR Under Section 44ADA for Freelancers and Professionals and Handle Tax Audits

Filing income tax returns (ITR) under Section 44ADA of the Income Tax Act provides a simplified process for freelancers and professionals, making tax compliance easier by offering a presumptive taxation scheme. This section is specifically designed for individuals and entities engaged in professions such as legal, medical, engineering, architectural, accountancy, technical consultancy, and interior decoration, among others. The key advantage of Section 44ADA is that it allows professionals to declare 50% of their gross receipts as taxable income, without the need to maintain detailed books of accounts. This removes the burden of keeping extensive records and provides a straightforward way to calculate taxable income. However, there are certain conditions, such as the annual gross receipts not exceeding ₹50 lakh, that need to be met for this scheme to be applicable.

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Table of Contents

• How to File ITR Under Section 44ADA for Freelancers and Professionals and Handle Tax Audits?

• Who Can Opt for Section 44ADA?

• Step-by-Step Guide to Filing ITR Under Section 44ADA

• Handling Tax Audits Under Section 44ADA

• Conclusion

• FAQs

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How to File ITR Under Section 44ADA for Freelancers and Professionals and Handle Tax Audits?

To file ITR under Section 44ADA for freelancers and professionals, you need to use ITR-4 (Sugam) and declare 50% of your gross receipts as taxable income, which simplifies the process without requiring detailed bookkeeping. The form allows you to input your professional income, while other sources of income and eligible deductions under Chapter VI-A can also be included. Ensure to pay advance tax if your liability exceeds ₹10,000, and report TDS deducted by clients. You do not need to maintain detailed books of accounts unless your declared income is below 50% of gross receipts and your total income exceeds the basic exemption limit, in which case a tax audit is required.

Who Can Opt for Section 44ADA?

Section 44ADA is available to resident individuals, Hindu Undivided Families (HUFs), and partnership firms, excluding Limited Liability Partnerships (LLPs). It is specifically designed for professionals engaged in fields like legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, and other notified professions. To qualify, the gross receipts from the profession must not exceed ₹50 lakh in a financial year. This provision provides a simplified method of taxation, allowing eligible professionals to declare 50% of their gross receipts as taxable income, without the need to maintain detailed books of accounts.

Step-by-Step Guide to Filing ITR Under Section 44ADA

Choose the Correct ITR Form

To file under Section 44ADA, use ITR-4 (Sugam), a simplified form for professionals and freelancers with income from presumptive taxation. This form is designed for individuals, Hindu Undivided Families (HUFs), and small business owners who meet the eligibility criteria of Section 44ADA.

Calculate Presumptive Income

The key advantage of Section 44ADA is the ability to declare 50% of your gross receipts as your taxable income. For example, if your total receipts are ₹40 lakh, your presumptive income would be ₹20 lakh. This eliminates the need for detailed record-keeping or claims for business expenses, making the process simpler and faster.

Fill Out the ITR-4 Form

Log in to the Income Tax e-filing portal or use platforms like TaxBuddy for a guided filing process. Begin by entering your general details such as PAN, Aadhaar, and address. In the "Professional, Freelancing and Business Income" section, select Section 44ADA and choose the relevant profession code from the available dropdown list. Enter your gross receipts, and the system will auto-calculate 50% as your income under this scheme.

Declare Other Income and Deductions

Along with your presumptive income, you must declare income from other sources such as interest or rent. Additionally, you can claim eligible deductions under Chapter VI-A, including deductions under sections like 80C, 80D, etc. Ensure all sources of income are accurately reported.

Advance Tax and TDS

Even if you are filing under Section 44ADA, you must comply with advance tax provisions. If your total tax liability exceeds ₹10,000 in a year, you must pay advance tax in quarterly installments. Also, report any Tax Deducted at Source (TDS) by clients using Form 16A or information from Form 26AS.

Verification and Submission

Before submission, review all the details entered in the form for accuracy. Once reviewed, complete the e-verification process using Aadhaar OTP, net banking, or any other available method. After successful verification, your ITR will be filed.

Handling Tax Audits Under Section 44ADA

Audit Not Required

If you declare 50% of your gross receipts as income under Section 44ADA and your total receipts are ₹50 lakh or less in a financial year, there is no requirement to maintain detailed books of accounts or undergo a tax audit. This is a major benefit for professionals, as it simplifies compliance significantly.

When Audit Becomes Mandatory

If you declare less than 50% of your gross receipts as income, or if your total income exceeds the basic exemption limit, a tax audit becomes mandatory. In such cases, you will need to maintain proper books of accounts, and a Chartered Accountant must audit them. The audit ensures the accuracy of the declared income and verifies that the financial statements meet the necessary compliance standards.

Switching Schemes

Unlike Section 44AD, which mandates continuous application of the scheme for five years, Section 44ADA does not require a long-term commitment. You can choose to opt in or out of the scheme each year, providing flexibility based on your income and professional situation.

Conclusion

Filing ITR under Section 44ADA is a highly beneficial option for freelancers and professionals, as it simplifies the process by allowing them to declare 50% of their gross receipts as taxable income without the need for extensive bookkeeping. This scheme not only reduces the paperwork but also ensures a smoother tax filing experience. To further ease the process, platforms like TaxBuddy provide invaluable support with guided filing, expert assistance, and real-time resolution of tax-related issues. TaxBuddy’s user-friendly tools allow you to upload documents, track refunds, and manage your tax matters effortlessly. For anyone looking for assistance in tax filing, I highly recommend you download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.

FAQs

Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?

Yes, TaxBuddy offers both self-filing and expert-assisted plans, providing flexibility for users. You can choose the self-filing option if you are comfortable with the process, or opt for expert-assisted filing if you need professional guidance. This ensures that you can customize your filing experience according to your level of expertise and preference.

Q2. Which is the best site to file ITR?

The best site for filing ITR depends on your specific requirements, such as the complexity of your tax situation and your preference for support. TaxBuddy is an excellent choice for many users due to its user-friendly platform, real-time assistance, and expert support, making the filing process seamless and straightforward.

Q3. Where to file an income tax return?

You can file your income tax return directly on the Income Tax Department’s e-filing portal or use trusted third-party platforms like TaxBuddy for a guided and simplified filing process. TaxBuddy ensures that you file accurately and on time, with expert support available to address any queries.

Q4. Can I opt for Section 44ADA every year or do I have to stick with it for five years?

Unlike Section 44AD, Section 44ADA does not have a mandatory five-year commitment. You have the flexibility to opt in or out of Section 44ADA every year, based on your income and professional circumstances. This allows you to switch between different tax schemes based on your evolving needs.

Q5. What if my gross receipts exceed ₹50 lakh?

 If your gross receipts exceed ₹50 lakh in a financial year, you are not eligible to file under Section 44ADA. In this case, you would need to opt for another taxation scheme that is better suited to your income level and business structure, such as Section 44AB for professionals with higher receipts.

Q6. How do I handle a tax notice or audit if I filed under Section 44ADA?

If you receive a tax notice or are selected for an audit after filing under Section 44ADA, platforms like TaxBuddy offer expert assistance to handle the process smoothly. TaxBuddy’s support team can guide you through the steps to resolve the notice, ensuring that you meet all compliance requirements and avoid any penalties.

Q7. Is advance tax payment necessary under Section 44ADA?

Yes, even under the presumptive taxation scheme of Section 44ADA, you are required to pay advance tax if your total tax liability exceeds ₹10,000 in a year. Advance tax payments should be made in quarterly installments, as per the prescribed schedule, to avoid interest penalties.

Q8. Can I file ITR-4 using a mobile app?

Yes, TaxBuddy allows you to file ITR-4 directly from your mobile device. This feature makes it easier to file your tax returns on the go, providing a convenient way to complete the process without needing a desktop or laptop. TaxBuddy’s mobile app ensures that you can file seamlessly and track your returns.

Q9. How does TaxBuddy assist in filing ITR under Section 44ADA?

TaxBuddy helps you file your ITR under Section 44ADA by providing a step-by-step guide through the filing process. The platform offers automated calculations, real-time expert support, and assistance with all necessary documentation, making tax filing accurate and easy to navigate.

Q10. What documents are needed for filing ITR under Section 44ADA?

To file ITR under Section 44ADA, you will need your PAN, Aadhaar, bank account details, and a summary of your gross receipts. Depending on your situation, you may also need documents for other sources of income or deductions you wish to claim under Chapter VI-A, such as 80C or 80D.

Q11. Can I switch from Section 44ADA to a different scheme?

Yes, Section 44ADA allows you the flexibility to switch to a different tax scheme based on your financial situation each year. If your income exceeds the limits or if your business structure changes, you can opt for an alternative scheme that better suits your needs.

Q12. What is the deadline for filing ITR under Section 44ADA?

The deadline for filing ITR under Section 44ADA generally follows the standard tax filing deadline, which is typically July 31st of the assessment year. However, it is important to keep track of any changes to deadlines that may occur in specific years due to amendments or extensions.