Managing different projects and maintaining financial records to file tax returns as the date approaches is a daunting job for every business enterprise, professional, or freelancer. However, a responsible citizen should pay taxes on time. Have ever heard of section 44ADA? If not, let us explain you! Here is a scheme called Presumptive Taxation Scheme which can ease the tax-saving task when the tax filing month is near. Incorporating the Presumptive Scheme Guide plan allows you to calculate your tax on an estimated income or profit in the case of businesses. Moreover, the scheme helps you maintain a book of accounts without worry. Therefore, don’t fret; dive in to know about the scheme guidelines in detail.
Presumptive Taxation Scheme under section 44ADA of Income Tax Act, 1961, was formulated, keeping in mind the small taxpayers, professionals, and small business owners who can easily audit and maintain the tedious task of accounts. This section of the income tax act states that any business with a turnover of less than Rs 2 crore can opt for tax returns. They must declare their profits of 8% for non-digital transactions or 6% for digital transactions, whichever is applicable.
People falling in the strata of this scheme can declare their total taxable income at the rate set in advance. The scheme’s guidelines have been described under sections 44AD, 44ADA, and 44AE.
Some Highlighted Guidelines Of The Presumptive Taxation Scheme Under Section 44ADA
Section 44ADA is fabricated to ease maintaining accounts and auditing the ledgers for those in specified professions. Therefore, any citizen of India and a professional can adopt the Presumptive Taxation Scheme. The occupations include legal, engineering, architectural, medical, accountancy, interior decoration, or technical consultancy.
There is some limitation regarding those who cannot avail the benefits under this Section:
Any professional whose total gross receipts exceed Rs. Fifty lakhs in a financial year will not be eligible for this scheme. Section 44ADA income tax states that the income should be computed @ 50% of total gross receipts. So professionals who can adopt the provisions under the scheme can declare income higher than 50%.
Individuals Opting For The Scheme Must Note The Following:
- He needs to file taxes for at least five years.
- If a person opts out and files taxes under regular ITR-3 before completing three years, he will not be able to file taxes under this presumptive taxation scheme for the next five years.
The Scheme Guidelines For Freelancers:
- Freelancers are self-employed and receive income from their salary, so they are also liable to pay income tax. The common professions for freelancing are software developers, photographers, interior and fashion designers, bloggers or gym instructors, etc.
- A freelancer’s benefit while preparing his tax return details is that the expenses he bears while completing an assignment can be deducted from freelancers’ income.
- Freelancers can deduct the expenses incurred that they spend during their freelancing work. This could be office rent, furniture, or expenses while visiting a client. Freelancers cannot claim their costs as a deduction. For example: If you are developing an app, you can deduct expenses on the testing app and software purchase. Again if you have expenses like the cost of an internet connection that you use both personally and professionally, you can allocate a certain percentage to the freelancing work and deduct them while filing for the return. Some expenditures are rent expenses, electricity, telephone or internet, petrol, and travel expenses.
Conclusion:
Taxation in a country like India is an important aspect. Presumptive taxation considers your net income 8% of your turnover, and you will pay tax on that income. Therefore, there is no need to maintain accounting records or audits. Income tax is not just regulation but a duty for every single citizen. So if you find yourself compliant with Section 44ADA, hope you got some meaningful insights.
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