44ADA of Income Tax Act – Presumptive Tax Scheme for Professionals and Freelancers

As a freelancer or professional in India, managing your taxes doesn't have to be complicated. The government has introduced a simpler way through Section 44ADA of the Income Tax Act - the presumptive taxation scheme that lets you pay taxes on just 50% of your gross receipts, regardless of your actual expenses.

No more maintaining detailed books or tracking every expense. Whether you're a doctor, architect, lawyer, or freelance consultant, this scheme could significantly simplify your tax compliance while potentially reducing your tax burden.

In this guide, we'll break down everything you need to know about Section 44ADA - who can use it, the limits, how to file your income tax return, and common mistakes to avoid. 

What is Section 44ADA of the Income Tax Act?

Section 44ADA is a simplified tax calculation method for professionals and freelancers. Instead of tracking every expense and making complex calculations, these normal provisions assume that half of what you earn is your net profit.

Here's how it works: You earned ₹20 lakhs from your consultancy work this year. Under Section 44ADA, You can declare ₹10 lakhs (50% of your earnings) as your taxable income. The remaining ₹10 lakhs are considered to cover your business expenses - no questions asked, no proof needed.

This straightforward approach saves you from the hassle of maintaining detailed expense records while potentially reducing your tax burden.

Who is eligible for Section 44ADA of the Income Tax Act? 

Not everyone can take advantage of Section 44ADA - designed specifically for certain eligible professionals and small business structures. Let's break down who can benefit from this presumptive scheme.

Eligible professions

If you're working in any of these fields, you're likely eligible:

Eligible business structures

The scheme is available only to:

For example, if you're a doctor running your clinic as an individual practitioner or in partnership with other doctors, you can opt for Section 44ADA. However, if you've structured your practice as an LLP or a private limited company, you won't be eligible for this scheme.

📚Important Notes:

Remember, just because you're in one of these professions doesn't automatically mean you should opt for Section 44ADA. The decision should depend on your actual expenses and business circumstances.

Save 50% on every international transfer

Receive from 150+ countries

Get global accounts

Zero forex margin

Sign up

What are the limits under 44ADA of the Income Tax Act? 

To use Section 44ADA, your professional income must stay within certain limits. 

Here's what you need to know about these thresholds: 

Basic limit

₹50 Lakhs If you're receiving payments through any means (cash, cheque, or online transfers), you can use Section 44ADA as long as your total professional income doesn't exceed ₹50 lakhs in a financial year.

Higher limit

 ₹75 Lakhs There's good news if you mostly receive digital payments. You can enjoy a higher limit of ₹75 lakhs if you meet this condition:

Let's look at some real examples:

Scenario 1: A consultant earning ₹60 lakhs annually:

Scenario 2: A lawyer earning ₹55 lakhs annually:

💡Important: When we say "cash receipts," this includes not just physical cash but also bearer cheques and bank drafts that aren't account payee. To stay safe, always insist on account payee cheques or digital payments from your clients.

Taxable Income under 44ADA of Income Tax Act 

Let's examine how your taxable income is calculated under Section 44ADA—it's simpler than you might think.

The 50% Rule 

Under Section 44ADA, the tax department assumes half of your turnover is your profit. Here's how it works in practice:

Let's say you're a freelance architect who earned ₹40 lakhs this year:

📚Note: Once you calculate your income this way, you can't claim any additional expenses. The 50% calculation is final - even if your actual expenses were higher or lower.

Can you declare more than 50%? 

Yes! The 50% is just the minimum. If your actual profit is higher, you should declare the higher amount. For example, if your real expenses were only ₹15 lakhs on a ₹40 lakh income, you should declare ₹25 lakhs as your taxable income.

Example

A consultant earns ₹30 lakhs in a year:

Remember, this simplified calculation is one of the biggest advantages of Section 44ADA - no need for detailed bookkeeping or expense tracking!

What is the tax rate for 44ADA? 

Let's clear up a common confusion - Section 44ADA doesn't have its special tax rates. Instead, after calculating your taxable income as 50% of your gross receipts, you'll pay taxes according to regular income tax slab rates.

Here's a practical example: Imagine you're a freelance consultant earning ₹30 lakhs annually:

Under New Tax Regime:

Under the Old Tax Regime:

Choose your tax regime based on your overall tax situation, including available deductions and other income sources.

💡Important: Remember to consider:

The only thing Section 44ADA does is help you calculate your professional income easily - it doesn't change how that income is taxed. You'll still need to pay taxes according to the normal income tax slabs applicable to you. 

Save 50% on every international transfer

Receive from 150+ countries

Get global accounts

Zero forex margin

Sign up

Section 44ADA of Income Tax Act with Example 

Here, we look at two practical examples to understand how Section 44ADA impacts your tax calculations.

Example 1: A freelance software exporter 

Meet Priya, a freelance software exporter who earned ₹40 lakhs this year with actual expenses of ₹12 lakhs.

Under Section 44ADA:

Without Section 44ADA:

In this case, Section 44ADA benefits Priya by reducing her taxable income by ₹8 lakhs.

Example 2: A legal consultant 

Consider Rahul, a legal consultant with annual earnings of ₹35 lakhs and high operating expenses of ₹22 lakhs.

Under Section 44ADA:

Without Section 44ADA:

Here, Rahul would pay more tax under Section 44ADA since his expenses exceed 50% of his income. He's better off not opting for this scheme.

👉Key Takeaway: Section 44ADA isn't always the best choice, depending on your business expenses. If your real expenses are less than 50% of your income, 44ADA can save you taxes and reduce your compliance burden. But if your expenses are higher, you might want to opt for regular tax computation.

Do I Have to Pay Advance Tax Under Section 44ADA of the Income Tax Act? 

Yes, you must pay advance tax if you opt for Section 44ADA, but the rules are simpler than regular advance tax payments.

Here's what you need to know:

What happens if you miss the deadline? If you don't pay advance tax by March 15th:

💡Pro tip: Mark March 15th on your calendar and set aside funds throughout the year to meet this obligation. It's better to be prepared than to scramble for funds at the last minute!

Save 50% on every international transfer

Receive from 150+ countries

Get global accounts

Zero forex margin

Sign up

Do I have to Maintain Books of Account under Section 44ADA of the Income Tax Act? 

One of the biggest advantages of Section 44ADA is that it frees you from the hassle of maintaining detailed books of accounts - with some conditions, of course. Let's break this down:

When you don't need books of accounts

Suppose you're declaring 50% (or more) of your gross receipts as income, and your total receipts are within limits (₹50 lakhs generally, or ₹75 lakhs for mostly digital payments). In that case, you can skip maintaining detailed books of accounts.

When you must maintain books: You'll need proper bookkeeping in two situations:

If your receipts exceed the limits:

If you want to claim higher expenses:

Example: A consultant earning ₹40 lakhs annually who declares ₹20 lakhs (50%) as income:

The same consultant, if declaring only ₹15 lakhs as income (claiming higher expenses):

👉Remember: While detailed bookkeeping might not be mandatory, keeping basic records of your income and major expenses is still good practice for your reference!

Which ITR form to choose for Section 44ADA of the Income Tax Act? 

If you've opted for Section 44ADA, you must file your returns using ITR-4. This form is specifically designed for professionals and businesses using presumptive taxation schemes. 

Mistakes to Avoid When Opting for Section 44ADA 

Many professionals miss benefits or face tax troubles because of simple oversights. Here are the key mistakes you should avoid: 

Not checking your eligibility criteria

Only specified professionals (like doctors, lawyers, and architects) qualify. Make sure your profession is on the list.

Declaring less than 50% of income without an audit 

If you claim expenses over 50% of total gross receipts and earn above the exemption limit, you'll need to maintain books and get audited.

Overlooking the gross receipts limit 

44ADA is for gross receipts up to ₹50 lakhs (or ₹75 lakhs with <5% cash receipts). Exceeding this disqualifies you.

Paying more tax than needed 

If your actual expenses are far below 50%, opting for 44ADA might mean higher taxes. Do the math.

Forgetting to update for higher receipts 

If your receipts cross the ₹50/75 lakh limit, you'll need to switch to regular taxation and audits.

📚Note: The goal of Section 44ADA is to simplify your taxes, not complicate them with avoidable mistakes! 

Receive compliant payments from international clients with Skydo 

Managing international payments and tax compliance can be overwhelming as a freelancer serving global clients. While Section 44ADA simplifies your tax calculations by letting you pay tax on just 50% of your income, receiving international payments remains challenging. 

That's where Skydo comes in - offering zero forex margin, instant FIRA, and local receiving accounts in multiple countries. With transparent fees and GST-compliant invoicing, Skydo helps you focus on your work while ensuring your international payments are fully compliant and cost-effective.

Get started with Skydo!