Section 44ADA of the Income Tax Act is a special provision that allows for computing the profits and gains of certain professions on a presumptive basis. The section was introduced in the Finance Act of 2016, and it is intended to help specified professionals with their tax payments and compliance. However, there are a few issues and concerns that have arisen from this provision that need to be addressed.
One issue is that the threshold limit of Rs 50 lakhs is too low. This limit may not achieve the intended objective of providing relief to professionals in the small and medium segments. Even the Income Tax Simplification Committee, headed by Justice R V Easwar, recommended a threshold limit of Rs 1 crore. This limit appears to be more justifiable given the present economic conditions in the country. It is suggested that the threshold limit be raised appropriately so that a larger percentage of professionals in the small and medium segments can be covered under this provision.
It is suggested that the rate of estimated income be reduced appropriately, say to 30%. This would take into account the high cost of providing services by specified professionals, especially small taxpayers having income from the profession. These suggestions aim to simplify the provisions of section 44ADA, and make it more beneficial for the intended professionals.
Lack of clarity on the applicability of section 44ADA Sub-section (1) of section 44ADA provides for a special provision for computing profits and gains of profession on a presumptive basis. However, there is lack of clarity on the applicability of this section. The section applies to specified professions such as legal, medical, engineering, architectural, accountancy, technical consulting, and interior decoration. However, it is not clear as to how this section applies to professionals who have multiple streams of income, such as a doctor who also runs a clinic and a lawyer who also runs a law firm.
This lack of clarity is causing confusion among professionals and is leading to difficulties in compliance with the provisions of this section. It is suggested that the government may provide clarifications on the applicability of section 44ADA for professionals with multiple streams of income. This will help professionals in understanding and complying with the provisions of the section in a better way.
In conclusion, section 44ADA of the Income Tax Act aims to provide relief to professionals in the small and medium segment by allowing them to compute their profits and gains on a presumptive basis. However, there are several issues and concerns arising from the current provisions of this section that need to be addressed. These include the low threshold limit of Rs 50 lakhs, the high rate of estimated income at 50%, and lack of clarity on the applicability of the section for professionals with multiple streams of income. It is suggested that the government may consider raising the threshold limit, reducing the rate of estimated income and providing clarifications on the applicability of the section to address these issues and concerns.