Section 44ADA - Presumptive Tax for Professionals

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Section 44ADA - Presumptive Tax for Professionals

Taxation is complex. There are so many chapters, sections, and subsections that if you try to remember them all, you might end up filing the wrong ITR. One section that has made a buzz in the market due to the rise in freelancing and offering professional services is section 44ADA. Let's discuss this section in detail.

What is Section 44ADA?

Section 44ADA of the Income Tax Act computes the gains of small-scale professionals. This section allows you to assume that half of your annual gross receipts are your income, and you pay tax on that amount.

Earlier, this scheme covered only small business owners, but now it is extended to professionals such as doctors, lawyers and engineers.

Significant updates to this section were made in the 2023 budget. For example, if you are a professional, your annual gross receipts don't exceed ₹75 lakh, and you ensure that 95% of your transactions are digital, you can take advantage of this presumptive taxation scheme.

This is a jump from the previous 44ADA limit of ₹50 lakhs. For small businesses, the turnover limit is revised to ₹3 crores from the previous ₹2 crores.

Benefits of Presumptive Tax for Professionals

Reduced Audit Requirement: Eligible professionals with gross receipts under the threshold are not required to have their accounts audited. This allows them to focus more on their business and look for new opportunities to boost revenue flow.

Cash Receipts Limit: As said before, to encourage digital transactions, the limit increase is conditional on having 95% of receipts through online mode. Shifting to digital transactions helps businesses manage their finances better.

Eligibility Criteria for Presumptive Income Under Section 44ADA

To qualify under this scheme, you need to meet the following criteria:

  • If you are an individual professional, such as a doctor, lawyer, or architect, and your annual gross receipts are less than ₹75 lakh, you are eligible for this scheme.

  • Your partnership firm (excluding Limited Liability Partnerships) can opt for this scheme if it involves a profession outlined in sub-section (1) of section 44AA, like engineering, accounting or technical consulting.

  • You are eligible if you are engaged in legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration or any other profession notified by the Board in the Official Gazette.

  • Movie artists include editors, directors, producers, actors, music directors, art dance directors, directors, lyricists, camerapersons, singers, screenplay or dialogue writers, story writers and costume designers.

  • Additionally, authorised representatives who represent someone for pay before any tribunals or authority constituted under law, except employees of the represented person or accountants, are also eligible.

Section 44ADA Example

Suppose you are a freelance graphic designer. Your total annual receipts in the financial year are ₹25 lakhs. You spent ₹7 lakhs on travelling to meet your clients, rent, conveyance, and a few utility-related expenses.

Here are your taxable incomes under the normal and presumptive schemes.

Normal Circumstance:

Gross Receipt ₹25,00,000
(minus) Expenses ₹7,00,000
Net Profit ₹18,00,000
Presumptive Scheme:
Gross Receipt ₹25,00,000
50% of Gross Receipt  ₹12,50,000
Net Profit Eligible for Tax ₹12,50,000

Considering the above example, if you wish to opt for the presumptive scheme, you only have to pay a tax of ₹12,50,000.

Presumptive Tax Rules for Salaried Individuals

The concept of freelancing is common these days. People engage in it to generate additional income while continuing their full-time jobs. In this scenario, salary income is combined with freelancing income for taxation to determine the accrued gross total income in the particular financial year.

The tax here will be levied based on the income tax slab of such a person.

Suppose your total salary income is ₹17 lakhs. You make around ₹10 lakh from freelancing. In this scenario, you can add half of your freelance income to your total earnings. This makes your annual gross income ₹22 lakhs. It is essential to mention that while filing ITR in such a scenario, you must use ITR-4.

Key Considerations When Declaring Professional Income Under Section 44ADA

Evaluate your actual expenses. Since the scheme taxes a fixed percentage of gross receipts, it might not benefit professionals with high operating costs.

  • While detailed books of accounts are not required, maintaining essential records of business transactions is necessary.

  • If you have foreign-based clientele, you must also pay tax on that income.

  • You, as a professional, have the option to opt out of this scheme anytime you wish.

  • Partners of a professional firm are entitled to individually choose Section 44ADA for their share of interest or remuneration from the firm, even if the firm itself has refrained from opting for this scheme.

  • If you choose this scheme, you must pay the entire advance tax amount by March 15th of the previous year. If you fail to do so, interest penalties are imposed per the provisions of section 234C.

Other Sections Under Presumptive Scheme

Section 44AD

This scheme applies to small businesses with gross receipts or turnover below ₹2 crores. However, once chosen, you must stick with this scheme for five consecutive years. Under Section 44AD, income computation is based on a presumptive basis at a 6-8% rate.

Section 44AE

This scheme applies to small business owners engaged in plying, hiring, or leasing goods carriages. You can opt for the Presumptive Taxation Scheme if you own fewer than ten goods vehicles during the financial year.

Your income is presumed to be a fixed amount of ₹7,500 per vehicle per month or part of a month, regardless of the actual earnings.


Section 44ADA allows professionals mentioned under this section to pay their taxes under a more simplified tax system. However, professionals can only opt for this scheme if their total income does not exceed ₹75 lakhs, and they must file their tax returns under ITR-Form 4.

About Tata AIG

As a professional, a presumptive scheme is not the only way to save on tax. You can also put some money towards pre-existing disease health insurance and save tax under section 80D.

A health insurance plan from reputed insurers like Tata AIG protects you against hefty bills related to hospitalisation, consultation, pharmacy, and screening tests.

When you buy health insurance online, you must consider the claim settlement ratio, co-pay clause, room rent capping, and a few others. Remember, the earlier you buy medical insurance, the lower your premium will be.

Disclaimer / TnC

Your policy is subjected to terms and conditions & inclusions and exclusions mentioned in your policy wording. Please go through the documents carefully.

What is Section 44ADA?

What is Section 44ADA?


It is a presumptive taxation scheme for certain professionals, simplifying tax compliance by assuming 50% of gross receipts as taxable income.

Who is eligible for Section 44ADA?


Eligible professionals include doctors, lawyers, engineers, accountants, and other specified professions with gross receipts up to ₹75 lakh.

Is detailed bookkeeping required under Section 44ADA?


No, detailed bookkeeping is not necessary if opting for the presumptive taxation scheme.

Can non-specified professionals opt for Section 44ADA?


No, it is only for specified professions. Others may consider Section 44AD for business income.