Income Tax Filing for Professionals

If you are an eligible businesses and professionals opting for presumptive taxation scheme under section 44AD/44ADA or small taxpayers earning casual income like tuition income, interest income etc, get an expert file your taxes.

Presumptive Tax – Easiest way to File Returns & Save Taxes for Creative Professionals

Professions for the purpose of Indian tax laws

👉 Engineering

👉 Legal

👉 Architectural profession

👉 Accountant

👉 YouTuber

👉 TikToker

👉 Vlogger

👉 Blogger

👉 Medical

👉 Technical consultant

👉 Interior decoration

👉 Consultant

👉 Artists

👉 Freelancers

About This Plan

Are you eligible business under Presumptive tax Scheme? Disclose income under section 44AD & sec 44ADA and file tax return with TAXAJ.

Timeline

It usually takes 3 to 5 working days.

Starts INR 1500/-

Services Covered

Who Should Buy

How It's Done

Documents Required

Services Covered

CA-Assisted Tax returns Filing
Business hours CA-Support
Documented follow up

Who Should Buy

Businesses having annual turnover under Rs. 2cr and declaring income above 8% (no audit)
Professionals & Freelancers having annual gross receipts under Rs. 50 lakh and declaring income at 50% or above (no audit)
Any other person having casual income.

How It's Done

Purchase of plan
Upload documents
Review computation sheet
Return filed & acknowledgement generated

Documents Required

Bank statements for the financial year
Income and Expense statements
Gross Receipts
Form 26AS Tax Credit Statement
Bank statement if interest received is above Rs. 10,000/-

Tax Filing for Freelancers Explained.

Q. What is Presumptive Taxation?

For professionals & freelancers, the government has introduced a new scheme of presumptive Taxation (Section 44ADA). Professionals can file their Income-tax return declaring 50% of their gross receipts (which must be up to ₹50 lakhs) income. After deducting the section 80 deductions, professionals need to pay tax on the total balance income. The creative professionals who are eligible to opt for this scheme are architectural professionals, interior decorators, advertisers or technical consultants.

If you receive foreign income from another country or client in your foreign bank account, even then, you will be taxed in India if you are an Indian resident.

Suppose you are paying taxes on your foreign income in that foreign country. Presumptive return is the way to claim tax relief on your taxed income while filing an Income tax return here. The amount which was taxed twice) in India and that particular foreign country should be revised under DTAA.

Presumptive taxation involves using indirect methods to compute tax liability. In presumptive returns, taxable income is assumed to calculate the income instead of actuals. Here, the professional is required to declare a given percentage of gross receipts of professional income as its income and pay a fixed percentage of it as tax. As per Finance Act 2016, professionals (as notified by CBDT) with gross receipts up to ₹50 Lakhs from April 1st, 2016 to March 31st, 2017, can opt for presumptive taxation. Also applicable for all financials years after financials years 2016-17.

Q. What if you have a day job and do freelancing work on the side?

Very often, salaried employees with a regular day job do additional freelance or consulting work in their leisure time. Can a presumptive taxation scheme be beneficial here?

Well, of course! Being in a job and also do freelance work, you have two kinds of income–salary income and non-salary income. Since both forms are income, you have to pay tax on both. Taxation on the salary income is computed regularly. It would be easy to club your freelance income to this salary to calculate your total taxable income for the year. In doing this, your presumptive taxation will be beneficial and will add only half of your freelance income to your taxable income for the year.

For example, if your salary is ₹10 lakh and your freelance income is ₹20 lakh, you can use presumptive taxation and add only half of the latter, i.e. 10 Lakh out of 20 Lakh, to your taxable income. This way, your total taxable income will be ₹20 lakh. Remember that you will have to use ITR-4 to file your income tax returns in such a case.

Q. What is included in my Income as a Freelancer?

Any amount you receive against specified services that you provide to your clients is freelance income. It won't matter if your client is in India or abroad. Your taxable income will also include:

👉 Salary Income- if you are in part-time employment.
👉 House property Income- Renting your house generates rental income.
👉 Capital Gain - If you trade in the share market or have gained from selling assets.
👉 Other Sources Income - This will pertain to include interest received on FDs, lotteries etc.

Q. What are the Benefits to File Returns under Presumptive Tax

Easy to File: The tax form is much shorter and simpler as compared to a complex 30 pages ITR form for filing.
Save Money: Professionals can now file tax returns on their own instead of paying a tax consultant. Typically, consultants charge anywhere from Rs. 5000 – 15000 for such filings. TAXAJ offers the same service for much less.
Save Tax: Usually, professionals do not have much expenses to declare. By declaring 50% of income as profit and balance as expense, a lot of tax saving can be done.

👉 National Defence Fund set up by the Central Government.

👉 Prime Minister’s National Relief Fund.

👉 In presumptive taxation under Section 44AD, your net income is considered as 8% of your turnover and you will pay tax on that income.

👉 If your receipts are in digital (non-cash) form then only 6% of your receipts is your net income and you will pay tax on that income.

👉 You don’t have to maintain accounting records.

👉 You don’t have to get your accounting records audited.

👉 You have to pay advance tax – but instead of estimating income and paying tax each quarter, you can pay all your advance tax before March 31. Advance tax, for taxpayers having opted for the presumptive scheme, is to be paid by 15th March of the relevant financial year if you expect that your income tax liability will exceed Rs.10,000 in the financial year.

Maintaining Books of accounts for freelancers u/s 44ADA?

The best part of section 44ADA is the non-maintenance of bookkeeping which means no audit!!

However, you're required to maintain books of account if:

👉 You claim profits and gains from the professional income lower than 50% of gross receipts, but your total income exceeds the basic exemption limit. Then as per section 44AA, prepare your books and get them audited u/s 44AB.

👉 You're a specified professional, but his gross receipts exceed Rs. 50 lakhs and you're unable to opt sec 44ADA then also you must get your books prepared & audited.

Books of Accounts that are required to be maintained?

The books of account required to be maintained by the specified professionals have been specified in Rule 6F of the Income Tax Act, 1961. They are namely:

👉 Journal,
👉 Ledger,
👉 Cashbook,
👉 Original as well as carbon copies of bills issued and
👉 The Payment vouchers.

But this requirement of maintenance of books is to be fulfilled if gross receipts of a person carrying on specified profession exceed Rs. 1,50,000. This limit is to be checked in all the three immediately preceding years. And in the case of a new profession, only if it is likely to exceed Rs.1,50,000 in the year of set up. In simple words, the books specified under Rule 6F are not required to be maintained only in the case of the following specified professionals:

👉 Who are eligible to opt for section 44ADA.
👉 Whose gross receipts do not exceed Rs. 1,50,000 and are also not eligible to opt for section 44ADA.

How Presumptive Taxation is calculated?

Let's try to understand this with a basic example. Pooja is a fashion model. She earned ₹40 lakh in FY2019-20, which leads to a lot of tax. In the ordinary course of things, without using the benefit of presumptive taxation, Pooja's taxable income would be something like this.

Taxable income without using presumptive taxation scheme

Total gross income for the year from various assignments and projects	₹40 lakh
Work-related expenses that she plans to claim as tax deductions Travel expenses Meeting expenses Communication expenses	₹10 lakh
Total taxable income (gross income – expenses)	₹30 lakh

If there was no presumptive taxation scheme, Shweta would pay income tax on ₹30 lakh. But by availing the benefit of presumptive taxation, she can show her taxable income to be half of her gross income–that is ₹20 lakh.

Taxable income after availing presumptive taxation scheme

Total gross income for the year from various assignments and projects	₹40 lakh
Presumed taxable income after availing presumptive taxation scheme	₹20 lakh

The presumptive taxation scheme allows her to save tax on ₹10 lakh. Let’s calculate how much tax she would actually save.

Without presumptive taxation	With presumptive taxation
Taxable income - ₹30 lakh	Taxable income - ₹20 lakh
Tax calculation as per Income Tax slabs for FY 2019-20	Tax calculation as per Income Tax slabs for FY 2019-20
Income	Tax	Income	Tax
Up to ₹2.5 lakh	₹0	Up to ₹2.5 lakh	₹0
From ₹2.5 lakh to ₹5 lakh	₹12,500	From ₹2.5 lakh to ₹5 lakh	₹12,500
From ₹5 lakh to ₹10 lakh	₹1,00,000	From ₹5 lakh to ₹10 lakh	₹1,00,000
From ₹10 lakh to ₹30 lakh	₹6,00,000	From ₹10 lakh to ₹20 lakh	₹3,00,000
Total	₹7,21,500	Total	₹4,12,500

So, now you know, by using the presumptive taxation scheme, Pooja will save approx ₹3 lakh in taxes. She will now have to pay ₹3 lakh less as income tax. Do note that a 4% cess is additionally added to the taxable income anyhow in both cases. Moving forward, Pooja will claim all deductions of Section 80 & investments above the presumptive taxation scheme.

Consultants, Freelancers, Professionals and those who earn an income by providing their services and expertise avail of this presumptive taxation scheme under Section 44ADA. But what if you maintain proper books of accounts and your net taxable income is less than half of your total gross income?

In Pooja's example, her work-related expenses were much higher, reducing her taxable income to ₹15 lakh. This amount is less than 50% of the total gross income in this FY. In such a case, you should pay tax on the taxable income after getting your books of account audited and should not avail of the presumptive taxation scheme.

However, such cases would be very few such cases. Typically, freelancers and professionals do not have a lot of work-related expenses to claim. Hence, the presumption of 50% of your total income being your profit works out in their favour under Section 44ADA.

Tax Implications if Professional Income is more than 50 Lakhs

If the professional receipts of a person are more than Rs. 50 Lakhs – the benefit of Presumptive Tax under Section 44ADA cannot be taken. In such a case, the person would be required to prepare a Profit & Loss Account and Balance Sheet as well as get his audit conducted by a practicing Chartered Accountant.

Compliances to be done in case the Professional Income is more than Rs. 50 Lakhs

If the Professional Receipts is more than Rs. 50 Lakhs, the following compliances need to be taken care of:-

Preparation of Books of Accounts along with Balance Sheet and Profit & Loss A/c

If the professional receipts of a person exceed Rs. 50 Lakhs in any financial year, he is required to prepare proper books of accounts along with Balance Sheet and Profit & Loss A/c and use ITR 3 form to file his Income Tax Return.financial year, he is required to prepare proper books of accounts along with Balance Sheet and Profit & Loss A/c and use ITR 3 form to file his Income Tax Return.

Audit under Section 44AB by a Chartered Accountant

As the annual receipts are more than Rs. 50 Lakhs, he would also be required to get an Income Tax Audit conducted by a practicing Chartered Accountant. The CA will verify all the facts and check copy of all invoices and accordingly prepare the Audit Report which is also required to be submitted along with the Income Tax Return. Income Tax Audit conducted by a practicing Chartered Accountant. The CA will verify all the facts and check copy of all invoices and accordingly prepare the Audit Report which is also required to be submitted along with the Income Tax Return.

TDS Deduction on Payments

As the annual receipts are more than Rs. 50 Lakhs, TDS would also be required to be deducted on expenses. For the purpose of deducting and depositing the TDS, the person would also be required to obtain a TAN No. The above are the compliances to be done under the Income Tax Act. In addition to the above mentioned compliances, the person would be required to do GST Compliances as well as the receipts are more than Rs. 20 Lakhs p.a.

Which is better: freelancing or work as a salaried person?

The answer is not simple. Every one has pros and cons of its own, which one is the right option will depend on one’s perspective, and many other spheres like one may prefer to work freely, and another may choose to work under an employer. Regarding taxes, if we compare a salaried person or a freelancer, then obviously, a salaried person stands in a better position. We will let you know-how.

Firstly, in the case of a salaried person, the deduction of TDS shall be a recurring process every month, so the requirement of payment of advance tax gets dispensed in their case. Whereas in freelancing, one has the responsibility to deposit advance tax during the year if his taxes during the year if the amount of tax exceeds Rs. 10,000

Secondly, a salaried person gets Form 16 from his employer covering all income, deduction etc. This form16 facilitates a lot to him while filing his return. At the same time, a freelancer has to jot down all his incomes and expenses during the year and take care of the taxes.

How to Save Taxes on such Income

The person can also claim the benefit of the following deductions i.e.

Deduction for Home Loan
Deductions under Section 80C
Deductions for Education Loan
Deductions for Health Insurance

The complete list of deductions which can be claimed are mentioned here – List of Income Tax Deductions

Pro Tip: Even after claiming all expenses as well as the benefit of deductions, the income tax in most cases turns out to be abnormally high. To save out on taxes, smart people have started creating entities in Tax Havens like Dubai and pay Zero Tax on their Income.

Frequently Asked Questions:

Q. Who can opt for the presumptive taxation scheme?

Only proprietors, Hindu Undivided Families(HUFs) and general partnership firms can opt for the scheme.

Q. I am a shopkeeper and wish to declare income less than 8% of my gross turnover. How can I do that?

If you declare income less than 8% of turnover and your income exceeds Rs. 2,50,000 (Individual Tax Slab), you are required to maintain the books of account as per the provisions of section 44AA and has to get accounts audited as per section 44AB. If your case falls under the above category, you should opt for our Business ITR(Regular) plan.

Q. Can I revise my return to correct a mistake in the original return filed?

Yes, the return can be revised within one year before completion of the assessment year or from the end of the current assessment year, whichever is earlier.

Q. Am I required to keep a copy of the return filed as proof and for how long?

Yes, under the Income-tax Act, legal proceedings can be initiated up to 4 to 6 years (depending upon case to case) before the current financial year.

However, in some instances, the department can initiate the Income Tax proceedings even after 6 years. Hence, it is advised to preserve the return copy for at least 6 years or maintain it as long as possible.

Q. What are the benefits under Presumptive Taxation Scheme?

The benefits include:

👉 No requirement to maintain books of accounts

👉 No requirement to get accounts audited

👉 No need to assess advance tax. It's paid by 15th March of the previous year. Note: Any amount paid by way of advance tax on or before the 31st day of March is also treated as advance tax paid during the financial year ending on that day. Note: The scheme applies only to a resident assessee who is an individual, HUF, partnership but not limited liability partnership

Q. I am a Life insurance agent. My gross receipts are Rs. 40 lakh. Am I eligible under the presumptive taxation scheme?

Certain businesses are explicitly barred from claiming benefits under presumptive taxation schemes, including:

👉 Business involved in renting, leasing, plying or hire of goods carriages

👉 Any agency business

👉 Individuals receiving brokerage income or commission.

👉 Individuals involved in any profession mentioned under section 44AA(1)

👉 Insurance agents, who receive any income via commission