Are you a professional income tax assessee struggling to maintain your income tax file ?
Amendments to acts, pre-conditions, ill advice and ignorance are the root of your problems. The income tax provisions of 44AD & 44ADA make it very easy for Professionals to file and maintain their income tax returns. Let us explore and understand more about it.
One of our goals is to educate and empower taxpayers with the right information. Today we explore the most commonly asked questions a Professional Income Tax assessee has & provide the right information for them to act on it.
Who is considered as a Professional Income Tax assessee according to the Income Tax department?
According to Sec 44ADA of the Income Tax Act, the professionals covered are legal, medical, engineering or architectural, accountancy, technical consultancy, interior decoration, any new professions notified by CBDT.
Who are the professionals not covered under Section 44ADA?
The professionals with gross receipts exceeding 50 lakhs in a financial year are not covered under this presumptive tax.
What is TDS and Is TDS deducted tax paid in full?
TDS stands for Tax Deducted at Source. When clients pay professionals their fee, clients are obligated to deduct tax if the payment exceeds Rs 30,000 in a financial year. For some professionals, this tax deduction may be 10% while for others it may be 5%.
Coming to the second part, No, TDS is not income tax paid in full. It is only advance tax. Sometimes, additionally tax has to be paid & sometimes we can claim a refund. This will be based on taxable income, Loans, Investment, savings instruments, etc of the assessee.
Where are the TDS details available?
All the TDS details are available in a form called form 16A issued by your principal or client or customer. If they have not issued you one, you can access the form 26AS from the TRACES portal, which shows the deducted details.
How does one arrive at the taxable income?
Taxable income is arrived by adding your income from all sources and reducing it by rebate at exemptions available.
The checklist for income sources are
- Income from Teaching / Consulting / Trading / Professional Income
- Interest on fixed deposit.
- Income from short-term capital gains like sale of Shares, Bonds, Mutual Funds, Debentures & Property.
- Long-term capital gains from the sale of property.
- Rental income and others.
- Income from Foreign sources
The net amount will be the taxable income upon which the tax is computed. If the balance is tax payable, you need to pay tax, otherwise claim a refund. One should bear in mind that payments received from foreign sources should also be included.
I am a professional who comes under Section 44ADA but my Gross Income is more than 50 Lakhs? Can I use Presumptive taxation?
No, professionals whose income is more than 50 Lakhs can not use this scheme. But such professionals will benefit immensely by hiring a tax professional and getting audited books of accounts. This way, they can take maximum benefits of provisions in the law instead of paying Tax on their whole income.
Eg: A professional PQR has an income of Rs. 200 lakhs and TDS deducted is 20 lakhs. As per books of accounts, profit is Rs. 10 lakhs. Let us assume after rebates allowed, tax on income is 2 lakhs. The balance 18 lakhs of TDS can be claimed as a refund. Rs. 2 lakhs shall be adjusted towards tax payable.
How does section 44ADA benefit on tax as compared to regular computation?
Let us make this clear with the help of an example. A medical professional XYZ has gross receipts of Rs. 48 lakhs. Under section 44ADA, XYZ will be paying tax only on 24 lakhs (50% of gross receipts) post rebate allowable under the Act. Under regular computation, it would have been calculated on profits. So if his profit is 37 lakhs as per books of accounts, then he would have paid tax on 37 lakhs less rebate allowable instead of 24 lakhs. So tax payable will be Rs. 13 lakhs less under Section 44 ADA.
Is it mandatory for a professional to go with Section 44ADA if his gross receipts are below 50 lakhs?
No, it is not mandatory. One can go with proper accounting. The taxable income can be lower as per books of accounts by opting for a tax audit. For eg, if the gross receipts of a professional are46 lakhs. Under Section 44ADA, the presumptive tax shall be payable on 23 lakhs less rebates allowable. If he is maintaining books of accounts and opting for audit, let us say the income post expenses and depreciation is Rs. 10 lakhs, he needs to pay tax on only Rs. 10 lakhs. The TDS deducted on the income after adjusting the tax payable can be claimed as a refund.
Let us recap. We have shared with you the most asked FAQs on Professional Income Tax Assessee. We have defined Professionals who come under Sec 44ADA. We have highlighted what limits are imposed on each of these professionals. We have now clarified TDS and Income Tax filing. So be a prudent taxpayer and pay your taxes on time. We have advised more than 2500 individuals over the last 25 years & helped them claim 50-80% tax refund by proper computation & declaration