ITR submitting: How revenue tax outgo turns into half for consultants
ITR submitting: If you might be working as a freelancer or marketing consultant who’s engaged in sure specified professions and has whole gross receipts not exceeding ₹50 lakh in a monetary 12 months then there’s some excellent news for you. The eligible professionals pays tax on half of their annual gross revenue. This might be finished by choosing a presumptive taxation scheme of the Income Tax Act.
What is ‘presumptive taxation’ scheme?
As per the Income-tax Act, an individual engaged in enterprise or occupation is required to keep up common books of account and additional, he has to get his accounts audited. Maintaining books of account is just not a simple activity and turns into tough work for small taxpayers. To relieve them of this tedious work, the Government began a scheme of presumptive taxation. This scheme is included in Section 44AD, Section 44ADA of the Income Tax Act 1961.
Also Read: Why salaried people mustn’t take pleasure in F&O buying and selling
In a tweet, CA Ameet Patel stated that sections 44AD and 44ADA are probably the most misunderstood and misused sections.
Income Tax Act: Section 44AD
“Under Section 44AD of the Income Tax Act, small taxpayers with a complete turnover or gross receipts of as much as ₹2 crore ( ₹2,00,00,000) in a monetary 12 months are eligible to go for the presumptive taxation scheme. As per this scheme, such taxpayers will not be required to keep up detailed books of account. Instead, their earnings are presumed to be 8% of their whole turnover,” said Abhishek Soni CEO and Co-founder Tax2win.
However, there’s a special provision that if the taxpayer receives payments through digital means or banking channels, the presumptive profit rate is reduced to 6% of the turnover instead of 8%. This measure aims to promote digital transactions and discourage the use of cash, he added.
Income Tax Act: Section 44ADA
Section 44ADA is specifically designed to provide relief to resident individuals in India who are engaged in certain specified professions and have total gross receipts not exceeding ₹50 lakh in a financial year. The specified professions include:
Legal
Medical
Engineering or architectural
Accountancy
Technical consultancy
Interior decoration
Any other profession as notified by the Central Board of Direct Taxes (CBDT).
How ‘presumptive taxation’ works?
Under this scheme, eligible professionals are allowed to declare 50% of their gross earnings from the profession as their taxable income for the relevant financial year. “The assumption behind this scheme is that professionals typically have lower expenses compared to businesses. Therefore, instead of maintaining detailed books of account and calculating actual expenses, the taxpayer can simply consider 50% of their total receipts as their taxable income,” defined Soni.
It’s important to notice that whereas 50% is the presumed revenue, eligible professionals can declare greater earnings and declare bills over 50% of the overall receipts in the event that they consider their precise bills are greater and may substantiate the identical. However, in the event that they select to go together with the 50% presumed revenue, they aren’t required to keep up books of account.
While submitting the ITR below the presumptive taxation scheme (Section 44ADA), the person has to decide on Form ITR-4. If the person additionally has capital positive aspects, they’ve to pick out Form ITR-3.
If you haven’t filed but, it’s best to rush and full the method as quickly as attainable because the deadline of July 31 is simply 4 days away.
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Updated: 28 Jul 2023, 12:53 PM IST
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