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What Is Presumptive Scheme For Taxation For Professionals And Can Every Professional Opt For It?

The laws of taxation offer a presumptive scheme of taxation for few professionals. In this article we will discuss about presumptive scheme for taxation for professionals and clear all the doubts.

For professionals what is the presumptive scheme for taxation?

According to the Section 44ADA of the Income Tax Act, specified professionals have the option to choose for a scheme under which they can offer 50% of your gross professional receipts as taxable profits from profession provided the gross receipts from the profession does not exceed INR 50 lacs in the relevant year. So you cannot opt for this scheme if your gross receipts exceed this threshold limit.

If you have net profits from your profession is less than 50% of receipts and you don’t want to offer minimum 50% as your income, you can surely do so but in that case you will have to maintain your BOA (books of accounts) and get those accounts audited from a certified Chartered Accountant for that year. However, you do not need to do your accounts audited in case total income from all the sources including the professional income does not exceed the amount of basic exemption limit. Currently the basic exemption limit is INR 2.50 lacs those who have not completed 60 years of age.

Who Can Take Advantage from Presumptive Scheme For Taxation For Professionals?

This scheme is available only for residential person or a partnership firm involved in specified profession but not to a LLP (limited liability partnership).  Therefore a non-residents Individuals & partnership firms or an HUF are not eligible for this scheme.

It is not like all the self -employed not engaged in any business activity are eligible to opt for this scheme. It is only the eligible assesses who are involved in the specified professions can go for this scheme.

Here are a list of few profession have been specified for this purpose.

These specified professions include

  • Doctors
  • Lawyers
  • Chartered Accountants
  • Company Secretaries
  • Architect, Interior Decorators And Engineers
  • Technical Consultants
  • Certain persons engaged in film industry
  • IT professionals etc.

There are many person who are working as consultant go for this scheme without knowing that whether they are eligible for this presumptive tax scheme or not. Hence all journalists who are working as freelancer or as consultant are not eligible for this scheme. Similarly, all mutual fund distributors, investment advisors, insurance advisors cannot opt for this scheme. All the individuals who are working as consultant with their ex-employer can’t opt for it unless they have specified professional qualification.

Law as regards maintenance of BOA in case you opt for the scheme

In case you are eligible for this scheme and opt for it, the law exempts you from the necessity to maintain your books of account for that year. What it simply means that you are saved the hassles of writing the BOA as well as preserving the vouchers for expenses. But, in case you are registered under the Goods and Service Tax Act, you may still need to maintain your books of account and preserve the necessary documents. So Individual doctors & lawyers who are not covered under GST act are fully free from the huge and tedious task of maintaining BOA.

Although you are exempted from need to maintain your books of accounts but in our opinion you will still have to preserve relevant records which can help you to prove the amount of professional receipts during the year claimed by you.

What will happen if your actual profits are More than 50%?

In any scenario if your actual income from profession is more than 50%, in our opinion, you have to offer such higher percentage of your professional receipts as your professional income as the law doesn’t just stipulate the fixed percentage but has provision for offering such bigger percentage as your income. Because you are not needed to maintain your books of accounts, it is may be commonly difficult to prove that your actual income is more than 50% of your gross receipts. However higher income can be easily established from the investments made and personal expenses incurred by you via banking channel. So for those who carry out their major transaction via banking channel it will not be possible to conceal the fact of actual income being higher than 50% of gross receipts. That’s why, before you decide to opt for the bare minimum percentage of 50% which you have to offer as income, have a look at the aggregate of investments made and personal expenses done by you during the year. Such concealed income may be taxed at 60% as unexplained amount along with interest & penalty in case the income tax department is able to prove it conclusively.

Can I change the option later on?

From the current year a salaried person every year has the option to choose between old tax regimes, offering different deductions exemption but with huge returns, and new tax regime, without such exemptions & deduction but offering minimal rate. However, as person involved in profession or business cannot opt out of the new schemes, once you have exercised the option until you end to have business income. However, in case of presumptive scheme of taxation a professional can use the option to have or not to have the presumptive taxation scheme every year.