Person liable for tax both under sec 44ab and sec 44ada

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

05 June 2017 Dear Experts,

Kindly answer my query regards how should a person file for tax (which ITR etc. for AY 2017-18) who is liable for tax under both Sec 44AB, i.e., running a professional services provider outfit with gross revenue under Rs 1 Cr., and with personal professional consulting income with gross revenue much below Rs 50 Lakhs. As per example provided on some IT department doc that I remember, such a person is not required to maintain books of accounts since these two incomes are below the audit limits.

However, how does this person file the tax returns for these two incomes in this case? Should such a person file NEW ITR-3 (which is older ITR-4)? If so, then in this case, how does he opt for presumptive taxation for the individual professional earnings that are mentioned above? Should he show the expenses against his individual professional earning at 50% (or LOWER), so as to be treated in a presumptive manner towards this income? Is there any cell or space to opt for this choice?

Thanks. Any guidance and/or with examples, and specific ITR to be used will be helpful.
Ravi

Nikhil Kaushik

Nikhil Kaushik (Expert)
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05 June 2017 what do you mean by professional service provider outfit? is it a separate entity with its own PAN?

Querist : Anonymous

Querist : Anonymous (Querist)

05 June 2017 Run as a proprietary small business, besides professional management consulting--both under same individual PAN.

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Querist : Anonymous

Querist : Anonymous (Querist)

06 June 2017 Expert guidance needed in above instance when an individual is due for tax on two different accounts as explained above.

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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10 August 2024 For the Assessment Year (AY) 2017-18, an individual who has income under both Sections 44AB and 44ADA should carefully choose the appropriate Income Tax Return (ITR) form and ensure they correctly reflect their income and claim presumptive taxation benefits.

### **Relevant Sections**

1. **Section 44AB**: This section mandates tax audit if the gross receipts of a business exceed Rs. 1 crore in a financial year. However, in the context of professionals (like consultants) whose gross receipts exceed Rs. 50 lakhs, the audit requirement is applicable.

2. **Section 44ADA**: This provides for presumptive taxation for small professionals (like accountants, doctors, etc.) with gross receipts not exceeding Rs. 50 lakhs. If opted for, the tax payable is computed at 50% of the gross receipts, and no further expenses are allowed.

### **Filing Process**

#### **1. Selection of ITR Form**

- **ITR-3**: This form is suitable for an individual who is a partner in a firm or has income from a proprietary business or profession. It is the correct form for those who have income under both business and profession.

- **ITR-4**: This form is used for individuals, Hindu Undivided Families (HUFs), and firms (other than LLP) who are opting for presumptive taxation under sections 44AD, 44AE, or 44ADA.

In your case, since you are dealing with:
- Income under Section 44AB (i.e., professional services exceeding Rs. 50 lakhs)
- Income under Section 44ADA (i.e., presumptive taxation for individual professional services)

**ITR-4** is applicable as it allows for opting for presumptive taxation under Section 44ADA and is simpler to use for those who fall under the presumptive taxation scheme.

#### **2. Filling the ITR Form**

When filing ITR-4:
- **Income Details**: Enter details of professional income under **Schedule BP (Business or Profession)**.
- **Presumptive Income**: Under Section 44ADA, you would report gross receipts and claim 50% of this as presumptive income. No further deduction for expenses is allowed under this section.

**Example for Section 44ADA**:
- Gross Receipts: Rs. 40 lakhs
- Presumptive Income: Rs. 20 lakhs (50% of Rs. 40 lakhs)

- **Section 44AB Income**: For income that is not under the presumptive taxation scheme and is liable for audit, you will also need to report the income and expenditures as applicable. Use **Schedule BP (Business or Profession)** to detail this income and expenditure.

#### **3. Reporting and Documentation**

- **For Presumptive Income (Section 44ADA)**: Report the gross receipts and the presumptive income directly. Ensure you meet the requirements and adhere to the presumptive taxation rules.
- **For Other Professional Income (Section 44AB)**: If your total income from this professional service is above the threshold requiring tax audit (i.e., Rs. 1 crore), ensure that all income and expenses are accurately reported, and a tax audit report is obtained if applicable.

### **Steps to File ITR-4**

1. **Download ITR-4 Form**: Obtain the form from the [Income Tax Department website](https://www.incometax.gov.in/).

2. **Fill Details**: Complete details related to your income under Sections 44ADA and 44AB. Ensure to include the presumptive taxation section correctly.

3. **Upload**: After filling out the form, validate and upload it on the Income Tax E-filing portal.

### **Important Considerations**

- **Maintain Records**: Keep detailed records and documents to substantiate your claims, especially if you’re opting for presumptive taxation under Section 44ADA.
- **Compliance with Audit Requirements**: If your total gross receipts (for any segment) exceed the audit limits, ensure compliance with the audit requirements.

### **Summary**

For AY 2017-18:
- Use **ITR-4** for filing.
- Report income under **Section 44ADA** for presumptive taxation if applicable.
- Report other income under **Section 44AB** if applicable and ensure compliance with audit requirements if thresholds are exceeded.

Always consult with a tax professional or Chartered Accountant for personalized advice, especially to ensure compliance with the latest regulations and accurate reporting.

Nikhil Kaushik

Nikhil Kaushik (Expert)
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10 August 2024 Please read the act before advising. If you are covered under 44ada, you cannot use 44ad. Professionals covered under 44aa(1) are explicitly excluded from 44ad. Don't give out wrong advice...that too 7 years late :)