How to File ITR Under Section 44ADA for Freelancers and Professionals and Minimize Tax Audits
- PRITI SIRDESHMUKH
- Jun 2
- 9 min read
Filing your Income Tax Return (ITR) under Section 44ADA offers freelancers and professionals a simplified method to declare income while minimizing the need for detailed accounting records. Section 44ADA, introduced under the Income Tax Act, allows professionals in specific sectors to opt for a presumptive taxation scheme. This scheme reduces compliance burdens, lowers the chances of triggering tax audits, and makes tax filing a streamlined process. By declaring 50% of their gross receipts as taxable income, freelancers can sidestep the complexity of maintaining books of accounts and claim tax deductions under Chapter VI-A. Let us explore how to file your ITR under Section 44ADA, the steps involved, and how to minimize the risk of tax audits.
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How to File ITR Under Section 44ADA for Freelancers and Professionals and Minimize Tax Audits?
To file ITR under Section 44ADA for freelancers and professionals, choose the correct ITR form, typically ITR-4, and declare 50% of your gross receipts as taxable income, as per the presumptive taxation scheme. This method simplifies the process by removing the need for detailed bookkeeping, while minimizing audit risks. Ensure to report all other income and claim applicable deductions under Chapter VI-A. To avoid audits, maintain records of transactions, pay advance tax if your liability exceeds ₹10,000, and ensure accurate reporting of TDS. TaxBuddy offers an easy-to-use platform to help freelancers and professionals navigate this process and stay compliant with minimal effort.
Who Can Opt for Section 44ADA?
Section 44ADA is designed specifically for certain categories of professionals and freelancers who meet the following conditions:
Eligible Professions: Freelancers and professionals working in fields like legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, and other notified professions can opt for Section 44ADA.
Eligible Entities: This scheme is available for resident individuals, Hindu Undivided Families (HUFs), and partnership firms, excluding Limited Liability Partnerships (LLPs).
Gross Receipts Limit: For the financial year 2024-25, the gross receipts of the professional or freelancer must not exceed ₹50 lakh. However, if cash receipts are less than 5% of total receipts, this limit increases to ₹75 lakh. This higher threshold is designed to encourage digital transactions and minimize the handling of cash.
Freelancers and professionals who meet these criteria can significantly benefit from the simplifications offered under Section 44ADA, reducing the administrative burden associated with tax filing and ensuring a hassle-free process.
Step-by-Step Guide to Filing ITR Under Section 44ADA
Choosing the Correct ITR Form
To file your ITR under Section 44ADA, you need to use ITR-4 (Sugam). This is the prescribed form for freelancers and professionals opting for presumptive taxation under this section. The form is designed to simplify the process by reducing the need for detailed accounting and maintaining books of accounts.
When Not to Use ITR-4: If you have income from capital gains, foreign income, or your total turnover exceeds the specified threshold, you will need to use ITR-3 instead. It is important to ensure that you select the correct form to avoid errors in filing.
Calculating Presumptive Income
Section 44ADA allows you to declare 50% of your gross receipts as taxable income. This is the presumptive income, and no further detailed accounting is required. Under this scheme, the assumption is made that 50% of the receipts are used for professional expenses, and the remaining 50% is treated as income.
Example: If your gross receipts for the year amount to ₹40 lakh, your presumptive income under Section 44ADA will be ₹20 lakh (50% of ₹40 lakh). This makes it easier to compute taxes, as you don’t need to itemize individual expenses.
Filling Out the ITR-4 Form
Once you have selected the appropriate ITR form and calculated your presumptive income, follow these steps to complete your tax filing:
Personal Details: Begin by entering your PAN, Aadhaar, contact information, and bank account details. Ensure all details are accurate to avoid any complications during processing.
Professional Income Section: Select Section 44ADA in the professional income section and choose the relevant profession code (e.g., legal, medical, etc.). Enter your gross receipts here, and the system will automatically calculate 50% of your receipts as taxable income.
Other Income: Report income from any other sources, such as interest, rental income, or dividends. These will be added to your presumptive income for the total taxable income.
Deductions: If you wish to claim deductions under Chapter VI-A (such as under Sections 80C, 80D, etc.), make sure to fill in the appropriate details. This can help reduce your overall tax liability.
Advance Tax & TDS: If your tax liability exceeds ₹10,000, pay advance tax in installments and report TDS deducted by clients through Form 16A or Form 26AS.
After filling out all the details, carefully review your entries before submitting the form.
How to Minimize Tax Audit Risks
Section 44ADA provides a simplified way to avoid tax audits, but there are a few essential steps that professionals and freelancers can follow to minimize the risk of a tax audit:
Declare 50% of Gross Receipts
Declaring exactly 50% of your gross receipts as taxable income is crucial to avoid triggering a tax audit under Section 44AB. If you declare less than 50% and your total income exceeds the basic exemption limit, the Income Tax Department will require you to maintain books of accounts and submit to a tax audit.
Keep Transaction Records
While Section 44ADA doesn’t require you to maintain detailed books of accounts, it’s wise to keep records of all transactions, invoices, receipts, and bank statements for at least six years. This ensures that you are prepared if your returns are selected for scrutiny.
Pay Advance Tax Timely
Timely payment of advance tax can help avoid interest charges and penalties. If your total tax liability exceeds ₹10,000 in a year, ensure that you pay your advance tax in quarterly installments. This not only reduces the chances of scrutiny but also prevents any penalties for late payment.
Report TDS Accurately
Ensure that TDS deducted by clients is reported accurately in your ITR, and cross-check the entries with Form 26AS. Discrepancies in TDS reporting are a common trigger for tax audits, so it’s crucial to ensure all entries match.
Required Documents for Filing ITR-44ADA
To file your ITR under Section 44ADA, you will need the following documents:
PAN and Aadhaar Card: These are essential for identity verification and filing your returns.
Bank Account Details: You will need the details of your primary bank account for any refund or payments.
Summary of Gross Receipts: A summary or list of invoices and receipts that reflect your professional income for the year.
Documents for Other Income: If you have income from other sources, such as interest or rent, include relevant documents or forms.
Proofs for Deductions: If you are claiming deductions under Chapter VI-A (like 80C, 80D), keep the supporting documents such as insurance receipts, PPF contributions, etc.
These documents should be organized and available for verification in case of any scrutiny.
Conclusion
Filing ITR under Section 44ADA simplifies the process for freelancers and professionals by allowing them to declare 50% of their gross receipts as taxable income without maintaining detailed books. By following the steps outlined in this guide, you can minimize the chances of triggering tax audits and ensure a smooth filing experience. For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
1. 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 for ITR filing. The self-filing option is ideal for individuals who are comfortable filing their taxes on their own with minimal guidance. On the other hand, the expert-assisted plan provides personalized support, where TaxBuddy’s experts help you with the entire filing process, ensuring accuracy and compliance. Whether you prefer to file on your own or need assistance, TaxBuddy offers flexible solutions to meet your requirements.
2. Which is the best site to file ITR?
The best site to file ITR depends on your preferences for ease of use, security, and available support. TaxBuddy is one of the most reliable platforms for ITR filing, offering both self-filing and expert-assisted options. It provides a user-friendly interface, automated reminders, and comprehensive guidance for professionals and freelancers. Additionally, it simplifies complex tax procedures, ensuring timely and accurate filings. Other popular options include ClearTax and the official Income Tax Department portal, but TaxBuddy’s ease of use and expert services make it an excellent choice for many.
3. Where to file an income tax return?
Income tax returns can be filed on the official Income Tax Department website at incometax.gov.in. However, many individuals and professionals prefer using third-party platforms like TaxBuddy, which streamline the filing process with additional features, including reminders, error checks, and expert support. TaxBuddy’s mobile app makes it convenient to file ITR on the go, ensuring a smooth and hassle-free experience.
4. Can freelancers claim business expenses under Section 44ADA?
Under Section 44ADA, freelancers and professionals do not need to maintain detailed books of accounts or report specific business expenses. This is because the scheme assumes 50% of your gross receipts to be used as expenses, and the remaining 50% is considered taxable income. As a result, you cannot claim individual business expenses like office rent, equipment purchases, or travel expenses separately. However, you can still claim deductions under Chapter VI-A for certain expenses, such as insurance or pension contributions.
5. What if my income is less than 50% of gross receipts?
If your declared taxable income is less than 50% of your gross receipts under Section 44ADA, the tax authorities may not accept your presumptive taxation claim. If your income exceeds the basic exemption limit, you will be required to maintain books of accounts and undergo a tax audit under Section 44AB. This defeats the purpose of opting for Section 44ADA, as the simplified filing option would no longer apply, and you would face the compliance burden of a regular tax audit.
6. Can I switch out of Section 44ADA in future years?
Yes, you can opt in or out of Section 44ADA each year based on your eligibility and business circumstances. If your income grows beyond the prescribed limit, or if your profession changes, you may choose to switch to the regular tax regime and file under Section 44AB. You are not locked into the scheme, and each year you can assess whether it continues to suit your needs. However, it’s essential to ensure that you are still eligible for the presumptive taxation scheme to benefit from its advantages.
7. What is the deadline for filing ITR under Section 44ADA?
The deadline for filing ITR under Section 44ADA is typically July 31st of the assessment year, unless extended by the government. However, if you are required to undergo a tax audit under Section 44AB, the deadline may be extended to September 30th. It’s important to keep track of any changes in the filing deadlines, as the government may occasionally extend the due date to accommodate taxpayers.
8. Is e-filing mandatory for Section 44ADA?
Yes, e-filing is mandatory for taxpayers filing under Section 44ADA. The Income Tax Department requires all tax returns, including those under the presumptive taxation scheme, to be filed electronically. This ensures that the filing process is secure, efficient, and traceable. You can file your ITR through the Income Tax Department’s website or platforms like TaxBuddy, which simplify the e-filing process with added features such as reminders and expert assistance.
9. Can I file ITR-4 if I have foreign income?
No, if you have foreign income, you cannot file ITR-4 under Section 44ADA. The ITR-4 form is intended for freelancers and professionals who do not have foreign income or capital gains. If you have foreign income or capital gains, you must file ITR-3, which is specifically designed for individuals with income from foreign sources or complex financial situations. Ensure to report all foreign income correctly in your ITR and comply with the necessary disclosure requirements.
10. How can TaxBuddy help with filing ITR under Section 44ADA?
TaxBuddy offers a comprehensive platform for filing ITR under Section 44ADA, simplifying the process for freelancers and professionals. It guides users step-by-step, from selecting the correct form (ITR-4) to calculating presumptive income and filing their return. TaxBuddy also offers expert support for those who need additional assistance, ensuring all deductions are correctly claimed, and the return is filed accurately. With its user-friendly mobile app, TaxBuddy helps you stay on top of important deadlines and ensures your filing is timely and error-free.
11. What documents do I need to file ITR under Section 44ADA?
To file ITR under Section 44ADA, you will need the following documents:
PAN and Aadhaar Card for identity verification.
Bank Account Details for refunds or payments.
Summary of Gross Receipts from your professional services.
Documents for Other Income such as interest, rent, or dividends.
Proofs for Deductions under Chapter VI-A if you are claiming deductions like 80C, 80D, etc.
These documents should be organized and readily available when filing your return to avoid delays.
12. How do I ensure my TDS details are correctly reported in my ITR?
To ensure that your TDS details are accurately reported in your ITR, always verify the entries in Form 26AS before filing. This form contains the details of tax deducted at source and is available on the Income Tax Department’s website. Cross-check the TDS amounts shown in Form 26AS with the income reported in your ITR. If there are discrepancies, resolve them with your clients or the tax authorities before filing to avoid any mismatches that could trigger a tax audit. Platforms like TaxBuddy make this process easy by auto-populating TDS information directly from Form 26AS.
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