A new section has been introduced in the Income Tax Act - Section 44ADA, w.e.f AY 17-18 with the aim of simplifying the tax compliance of professionals particularly small professionals so that it facilitates ease and efficiency in carrying out their professional obligations.
The section applies to -
a. resident assessees engaged in a profession referred to in Section 44AA (1) i.e. legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as may be notified and
b. whose total gross receipts do not exceed fifty lakh rupees in a previous year. If the above are satisfied, a sum equal to 50% of the total gross receipts of the assessee in the previous year on account of such profession or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the assessee, shall be deemed to be the profits and gains of such profession chargeable to tax under the head "Profits and gains of business or profession".
For example, a practising chartered accountant can opt for Section 44ADA, if his gross receipt from his profession is 50 lakhs or less during the previous year. He may show 50% of such receipts or a higher sum as profits and gains of his profession. It may be noted that any deduction allowable under the provisions of sections 30 to 38 shall be deemed to have been already given full effect to and no further deduction under those sections shall be allowed. Hence depreciation, unabsorbed depreciation and other specific deductions spelt out in Sections 30-38 are already deemed to have been given effect to.
Moreover, the written down value of any asset used for the purposes of profession shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years. If the assessee opts for Section 44ADA, then he need not maintain books of accounts u/s 44AA nor should he get them audited u/s 44AB. This is similar to the provision given in Section 44AD. This means if the assessee is ready to declare 50% of his gross receipts or a higher sum as profits and gains of his profession, he is relieved from the duty of maintaining books of accounts and also from tax audit as per the Income Tax Act.
But, if an assessee who claims that his profits and gains from the profession are lower than 50% of gross receipts and his total income exceeds the maximum amount which is not chargeable to income-tax, then,
i. he shall be required to keep and maintain such books of account and other documents as per Section 44AA.
ii. and get them audited and furnish a report of such audit as required under Section 44AB.
Illustration:
Mr. R, a practising chartered accountant has gross receipts of Rs. 38 lakhs for FY 2016-17. He has paid Rs. 250000 towards rent without deducting tax at source. He has unabsorbed depreciation of Rs. 3 lakhs. Calculate his total income if he opts for Section 44ADA.
Solution: Since Mr. R is a practising chartered accountant whose gross receipts are not more than Rs.50 lakhs, he is eligible to opt for Section 44ADA.
Accordingly, 50% of his gross receipts or a higher sum shall be deemed to be the profits and gains of such profession. So 38 lakhs * 50% = 19 lakhs. This will be deemed to be his total income for AY 2017-18.
Note: No adjustment is needed for disallowance u/s 40a (ia) since Section 44ADA is a deeming section and no computation of income is involved. Moreover any deduction allowable under the provisions of sections 30 to 38 shall be deemed to have been already given full effect to and no further deduction under those sections shall be allowed.
Hence unabsorbed depreciation u/s 32 is not allowed as a deduction. Hence total income is Rs. 19 lakhs.
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