Therefore, Mr. Jagdish Chand will save Rs.3,75,000 on income tax under presumptive taxation scheme. Furthermore, he can claim all Section 80 tax-saving deductions and investments over and above the presumptive taxation scheme.

What Deductions are allowed in the Scheme u/s 44ADA?

Following deductions are allowed under the section 44ADA:

a)All deductions from sections 30 to 38 (including depreciation and un-absorbed depreciation / allowances) shall be deemed as allowed and no further deduction is allowed under any of these sections.

b)Written down value (WDV) of depreciable assets shall be recomputed deducting depreciation which is deemed as allowed

Maintaining books of account:

The taxpayer would also NOT require to:-

a)Maintain books of account under sub-section 1 of Section 44AA, or

b)Get the accounts audited under section 44AB

But, if an assessee who claims that his profits and gains from the profession are lower than 50% of gross receipts and his total income exceeds the maximum amount which is not chargeable to income-tax, then, he has to maintain books of account as per section 44AA and get the audited and furnish report u/s 44AB.

Unlike Section 44AD for business, a professional can easily opt in and out of the presumptive taxation scheme without any restriction of 5 year period. This means a professional can opt this scheme for a year and opt out of it the next year. He/she can further take up the scheme again the third year.

What if you maintained proper books of accounts and your net taxable income is less than half of your gross total income?

This would mean your work related expenses are higher and your taxable income is less than the total gross receipts. In such a case, you professionals should not avail the presumptive taxation scheme and pay tax on the actual taxable income after getting books audited.

Whether income from foreign clients should also be included?

This is the general confusion with the professionals providing services to foreign clients. The answer is simple YES. As a resident of India, the income is received in India, hence your global income will be taxed in India. If you are paying taxes on your foreign income in that foreign country, then you can claim tax relief on taxed income (which was taxed twice), while filing return in India.

Benefits of filing return under Presumptive Tax Scheme:

¶   Consultants can file income tax return form ITR-4 (old ITR-4S) - which is a much simpler form - instead of ITR-3 (old ITR-4) - which is a relatively bulky form.

¶   Professionals can now file tax returns on their own instead of paying a tax consultant.

¶   Usually, there are not many expenses to declare for professionals, by declaring 50% of income as profit and balance as expense, a lot of tax saving can be done.

What if you do freelancing work on the side?

These days we often see that salaried employees with a regular day job provide freelance or consulting services in their spare time. In such cases also you can opt for the benefit of presumptive taxation scheme.

If you have a regular day job and you also do freelancing or consulting, then you have two kinds of income i.e. salary income and non-salary income. Since both are income under the laws, tax would be charged on both. You can simply add your freelancing income to salary income to compute the total taxable income. However, you can use the benefit of presumptive taxation scheme and add only half of your freelance or consulting income to your salary income.

For instance, if you salary income is Rs.22 lakh and your freelance income is Rs12 lakh, you can use presumptive taxation and add only half of the latter to your total income. This way, your total income for the year will be Rs.28 lakh.

Conclusion: