The income tax department allows certain “professionals” to pay tax only on 50% of their total income on a presumptive basis under section 44ADA of the IT act (t&c apply)*. However, there is plenty of confusion on who is eligible to file returns under ADA and who is not. A discussion.
Disclaimer: No part of this article should be treated as taxation advice. Kindly consult a CA if you need guidance to file returns.
* Important! If the actual net income (gross income minus expenses) is greater than 50% of gross income then only the actual net income (the higher amount) is taxable! The ITR form is clear about this!!
Who is eligible to file IT returns under section 44ADA?
- Only resident individuals; Hindu Undivided Family; Partnership firms other than LLP quality.
- Annual gross income should be less than Rs. 50 lakhs.
- The IT dept. mentions the following professions as eligible.
- Legal
- Medical
- Engineering or architectural
- Accountancy
- Technical consultancy
- Interior decoration
- Any other profession as notified by CBDT. These include authorized representatives, film artists, sports persons, company secretaries and information technology (independently employed).
Allowed 44ada business codes in ITR4 (or ITR3) under “profession”
- Software development 14001
- Other software consultancy 14002
- Data processing 14003
- Database activities and distribution of electronic content 14004
- Other IT enabled services 14005
- BPO services 14006
- Maintenance and repair of office, accounting and
- computing machinery 14008
- Legal profession 16001
- Accounting, book-keeping and auditing profession 16002
- Tax consultancy 16003
- Architectural profession 16004
- Engineering and technical consultancy 16005
- Fashion designing 16007
- Interior decoration 16008
- Photography 16009
- Business and management consultancy activities 16013
- Secretarial activities 16018
- Film Artist (applicable from AY 20-21) 16020
- Medical Profession (applicable from AY 20-21) 16019_1
- General hospitals 18001
- Speciality and super speciality hospitals 18002
- Nursing homes 18003
- Diagnostic centres 18004
- Pathological laboratories 18005
- Medical clinics 18010
- Dental practice 18011
- Ayurveda practice 18012
- Unani practice 18013
- Homeopathy practice 18014
- Nurses, physiotherapists or other para-medical practitioners 18015
- Veterinary hospitals and practice 18016
- Medical education 18017
- Medical research 18018
- Practice of alternative medicine 18019
- Other healthcare services 18020
- Individual artists excluding authors 20010
- Literary activities 20011
- Other cultural activities n.e.c. 20012
For professions explicitly listed, the applicability of 44ADA is not much of an issue. Today there are so many new professions where individuals directly use their expertise to assist others direct or indirectly. So the interpretation is subject to a lot of debate. The same applies to our reading of the rules.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
For example, “Engineering and technical consultancy 16005” or “Business and management consultancy activities 16013” can refer to several professions. The ITR form has a description box for details. We recommend consulting with a CA before filing. That said, different CAs have different opinions and interpretations!
Thumb rule: Can you “fit” your profession in the above categories and provide a truthful and logical justification to the IT department? If yes, you can opt for 44ADA. However, be prepared to justify your stand if there is an enquiry and pay extra tax if they are unconvinced.
- Take for example a financial advisor. Can she opt for 44ADA? Since she is engaged in technical consultancy, she can.
- How about a freelancer or a digital marketer? Both these are broad and vague terms so we will have to be careful.
- A person offering SEO services can opt for 44ADA under technical or managerial consultancy. They should be ready to justify this to the IT dept.
- A person offering social media ad management services may not be able to since “advertising 16006” is not a listed option.
- A person doing odd jobs on Fiverr eg. minor website modifications, content writing etc. will have a tough time justifying the use of 44ADA and therefore we recommend against it.
- A person offering a variety of services (a small “business”) can opt for filing returns under 44AD instead of 44ADA. Section 44AD can be more favourable depending on your expenses. Again a CA is the best judge here.
- I am a blogger, vlogger or content creator can I use 44ADA for my earnings? No. It is meant for professionals offering their services to specific entities. At least that is our opinion. It may be possible to justify your activities under “distribution of electronic content” – whether the IT dept. will accept this or not is unknown.
- How about those who have income from commissions or brokerage – affiliate marketing, insurance sales, mutual fund sales etc.? Again they will not come under the category of “professional” and cannot use section 44ADA. In fact, the IT act says “A person who is earning income in the nature of commission or brokerage cannot adopt the presumptive taxation scheme of section 44AD” also.
- My net income after expenses is higher than 50% of the gross income. Can I still only show 50% of the gross income as taxable? No! Taxation is based on the honour system. Under section 44ADA 50% of gross income is the lower limit of taxability. If your net income is higher then only that should be reported. The same applies to section 44AD also (in this case the lower limit is 6% of gross income for digital payments and 8% for cash payments, but if the actual net income is higher then only the actual amount should be entered. The ITR form is clear about this).
In summary, section 44ADA is applicable only to professionals earning an income via their expertise. To opt for this section, your profession must fall under certain categories and you must be able to provide a truthful and logical justification to the IT department. In the case of unconventional or new professions be ready for an enquiry. For certain situations, opting for section 44AD may be better (eg. high overheads) and more appropriate instead of 44ADA. Please consult a CA in this regard.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 7000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 2,500 investors and advisors use this!
Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! You can watch podcast episodes on the OfSpin Media Friends YouTube Channel. 🔥Now Watch Let's Get Rich With Pattu தமிழில் (in Tamil)! 🔥
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available! Most investor problems can be traced to a lack of informed decision-making. We made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So, in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it, as well as teaching him several key ideas of decision-making and money management, is the narrative. What readers say!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.
Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)