How to Opt for Section 44ADA and Simplify Your Taxation

How to Opt for Section 44ADA and Simplify Your Taxation

Section 44ADA

Tax compliance in India can often feel complex, especially for professionals and small businesses. To simplify this process, the Income Tax Act, 1961, provides presumptive taxation schemes that reduce the burden of maintaining detailed books of accounts and undergoing a tax audit. One such provision is Section 44ADA, introduced specifically for professionals.

But before diving into Section 44ADA, it’s important to understand the general framework of tax audit requirements under Section 44AB, since presumptive taxation schemes are designed as an alternative to full audits.

Tax Audit Requirements under Section 44AB

Under Section 44AB of the Income Tax Act, certain taxpayers are required to undergo a tax audit, conducted by a Chartered Accountant, to ensure the accuracy of income reporting and compliance with tax laws.

Who Needs a Tax Audit?

  • Businesses

    • Turnover exceeds ₹1 crore during the financial year.

    • This threshold is extended up to ₹10 crores if cash receipts and payments do not exceed 5% of total transactions.

  • Professionals

    • Gross receipts exceed ₹50 lakhs in a financial year.

    • (As per Budget 2023, this limit is proposed to increase to ₹75 lakhs.)

Deadlines for AY 2025-26

  • Tax Audit Report filing: September 30, 2025

  • Income Tax Return (for audited cases): October 31, 2025

Failure to comply attracts a penalty under Section 271B – either 0.5% of turnover/receipts or ₹150,000, whichever is lower.

What is Section 44ADA?

  • Tax Audit Report filing: September 30, 2025

  • Income Tax Return (for audited cases): October 31, 2025

Failure to comply attracts a penalty under Section 271B – either 0.5% of turnover/receipts or ₹150,000, whichever is lower.

What is Section 44ADA?

Section 44ADA is a presumptive taxation scheme introduced to simplify tax compliance for professionals. Instead of maintaining detailed books of accounts and undergoing audits, eligible professionals can declare a fixed percentage of their gross receipts as income.

Eligibility Criteria for Section 44ADA

  • Applicable only to resident individuals, Hindu Undivided Families (HUFs), and partnership firms (excluding LLPs).

  • Covers notified professions such as:

    • Legal

    • Medical

    • Engineering

    • Architectural

    • Accountancy

    • Technical consultancy

    • Interior decoration, and other specified professions.

  • Gross receipts should not exceed ₹50 lakhs in a financial year (proposed increase to ₹75 lakhs as per Budget 2023).

How Does Section 44ADA Work?

  • Professionals can declare 50% of gross receipts as their taxable income.

  • No need to maintain detailed books of accounts under Section 44AA.

  • No need for tax audit under Section 44AB, provided income is declared at the prescribed rate.

  • The declared income is taxed at normal slab rates applicable to the taxpayer.

  • Expenses are deemed to have been claimed, meaning no further deductions for actual expenses are allowed.

Example:
If a professional earns ₹40 lakhs in a year, they can declare ₹20 lakhs (50%) as taxable income under Section 44ADA, without worrying about maintaining books or audit.

Key Benefits of Section 44ADA

✅ Simplifies tax compliance for small professionals.
✅ Eliminates the need to maintain complex books of accounts.
✅ Saves costs on audits and compliance.
✅ Provides certainty by fixing income percentage.

When Does Section 44AB Still Apply to Professionals?

  • If gross receipts exceed the Section 44ADA threshold (₹50L/₹75L).

  • If a professional chooses to declare income lower than 50% of receipts and their total income exceeds the basic exemption limit.

In such cases, tax audit under Section 44AB becomes mandatory.

Final Thoughts

Section 44ADA is a powerful option for small professionals looking to reduce compliance burdens. By opting for this presumptive scheme, eligible taxpayers can save time, effort, and money while ensuring they remain tax compliant.

However, for those exceeding the thresholds or choosing not to adopt the scheme, traditional rules under Section 44AB will continue to apply, with strict deadlines and penalties for non-compliance.

Read More: ITR Rectification Made Easy: Fix Errors with Section 154

Quick Compliance Calendar for AY 2025-26

  • Tax Audit Report: 30th September 2025

  • ITR for Audit Cases: 31st October 2025

Opting wisely between presumptive taxation (44ADA) and regular audit (44AB) can help professionals strike the right balance between compliance and efficiency.

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Calculate Turnover for Tax Audit u/s 44AB in Case of OPTIONS!!

From time to time ICAI has issued the updated version of Guidance Note on Tax Audit u/s 44AB (eight edition) after incorporating the changes/ amendments in provisions relating to tax audit and reporting requirements for the relevant assessment year, for information and support of the Members.

How to calculate the turnover in a transaction of options?

As per the Seventh Edition of GN issued in 2014  As per the Eighth Edition of GN issued in 2022
(i) The total of favourable and unfavourable differences shall be taken as turnover.
(ii) Premium received on sale of options is also to be included in turnover.
(iii) In respect of any reverse trades entered, the difference thereon, should also form part of the turnover.		 (i) The total of favourable and unfavourable differences shall be taken as turnover.
(ii) Premium received on sale of options is also to be included in turnover. However, where the premium received is included for determining net profit for transactions, the same should not be separately included.
(iii) In respect of any reverse trades entered, the difference thereon, should also form part of the turnover.

Note: Earlier in the calculation of turnover, the premium received was in principal considered twice i.e both in point (i) and point (ii) above. The portion of the premium during the sale was already included in the total of favourable and unfavourable differences.

Practical Example to understand the change in the calculation of turnover

Mr. Suresh did the following option trading transactions

  • Bought 1 lot of call option 500 shares of EFG for Rs. 80 & sold at Rs. 100 (Call Option) and
  • Bought 1 lot of put Option, lot size 500 share of KLM for Rs 50 and sold at Rs. 45.
  • Sold 1 lot of Call option, lot size 500 shares of XYZ for Rs. 60 and contract not squared off on expiry and delivery is given.

The first two transactions are examples of squared-off transactions and the third transaction is the example of the contract not expired and settled through delivery.

Script Name Transaction Type Lot Size Purchase Value Sales Value (Premium received on Sale) Gain / (Loss) Turnover as per GN 2022 Turnover as per GN 2014
(1) (2) (3) (4) (5) (6) (7) =(5)-(4) (8) = (5)+(6)
EFG Call Option 500 40,000 50,000 10,000 10,000(Note-1) 60,000(Note-2)
KLM Put Option 500 25000 22,500 (2,500)Loss 2,500 25,000
XYZ Call Option (Not squared off) 500 – 30,000 – 30,000(Note-3) 30,000
Total 42,500 1,15,000

As we can see in the above example Turnover as per New Guidance Note 2022 would be Rs. 42,500/- and as per old Guidance Note 2014 would be Rs. 1,15,000/-.

Note -1: Turnover = As premium received is included for determining profit/loss so it’s not included in turnover i.e. Absolute Profit/Loss = 10,000/-

Note -2: Turnover = Premium received on sale 50,000 + Absolute Profit/Loss Rs. 10,000 = 60,000

Note -3: Turnover = Premium received on the deemed sale of that contract on the expiry date, premium received is not included in determining profit/loss. {SEBI mandates physical settlement if a trader holds a position in any of the stock F&O contracts on the expiry date if the contract is not squared off.}

Let us see the various categories of taxpayers below:

Category of person Threshold
Business
Carrying on business (not opting for presumptive taxation scheme*) Total sales, turnover or gross receipts exceed Rs.1 crore in the FY
If cash transactions are up to 5% of total gross receipts and payments, the threshold limit of turnover for tax audit is increased to Rs.10 crores (w.e.f. FY 2020-21)
Carrying on business eligible for presumptive taxation under Section 44AE, 44BB or 44BBB Claims profits or gains lower than the prescribed limit under presumptive taxation scheme
Carrying on business eligible for presumptive taxation under Section 44AD  Declares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic threshold limit.
Carrying on the business and is not eligible to claim presumptive taxation under Section 44AD due to opting out for presumptive taxation in any one financial year of the lock-in period i.e. 5 consecutive years from when the presumptive tax scheme was opted If income exceeds the maximum amount not chargeable to tax in the subsequent 5 consecutive tax years from the financial year when the presumptive taxation was not opted for
Carrying on business which is declaring profits as per presumptive taxation scheme under Section 44AD If income exceeds the maximum amount not chargeable to tax in the subsequent 5 consecutive tax years from the financial year when the presumptive taxation was not opted for
Carrying on business which is declaring profits as per presumptive taxation scheme under Section 44AD If the total sales, turnover or gross receipts does not exceed Rs 2 crore in the financial year, then tax audit will not apply to such businesses.
Profession
Carrying on profession  Total gross receipts exceed Rs 50 lakh in the FY 
Carrying on the profession eligible for presumptive taxation under Section 44ADA 1. Claims profits or gains lower than the prescribed limit under the presumptive taxation scheme 
2. Income exceeds the maximum amount not chargeable to income tax
Business loss
In case of loss from carrying on of business and not opting for presumptive taxation scheme Total sales, turnover or gross receipts exceed Rs 1 crore
If taxpayer’s total income exceeds basic threshold limit but he has incurred a loss from carrying on a business (not opting for presumptive taxation scheme) In case of loss from business when sales, turnover or gross receipts exceed 1 crore, the taxpayer is subject to tax audit under 44AB
Carrying on business (opting presumptive taxation scheme under section 44AD) and having a business loss but with income below basic threshold limit Tax audit not applicable
Carrying on business (presumptive taxation scheme under section 44AD applicable) and having a business loss but with income exceeding basic threshold limit Declares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic threshold limit

Revised Income Tax Audit Limits for AY 2022-23

Revised Income Tax Audit Limits for AY 2022-23

We will discuss compulsory tax audit of accounts for A.Y.2022-23 (F.Y.2021-22 from 01-04-2021 to 31-03-2022)., You can find here the tax audit limits for businesses, and tax audit limits for professionals (like doctors, accountants, architects etc. for the assessment year 2022-23. It covers all the amendments related to the finance act 2021 and finance act 2022. 

Under section 44AB of the Act, every person carrying on business is required to get his accounts audited, if his total sales, turnover or gross receipts, in business exceed or exceeds one crore rupees in any previous year. In case of a person carrying on profession he is required to get his accounts audited, if his gross receipt in profession exceeds, fifty lakh rupees in any previous year. 

In order to reduce compliance burden on small and medium enterprises, through Finance Act 2020, the threshold limit for a person carrying on business was increased from one crore rupees to five crore rupees in cases where,- (i) aggregate of all receipts in cash during the previous year does not exceed five per cent of such receipt; and (ii) aggregate of all payments in cash during the previous year does not exceed five per cent of such payment.

 In order to incentivise non-cash transactions to promote digital economy and to further reduce compliance burden of small and medium enterprises, it is proposed to increase the threshold from five crore rupees to ten crore rupees in cases listed above. 

In case of person engaged in business and opting for presumptive taxation under section 44AD:

Turnover limit for the previous year Amount of profit with respect to turnover (in %) Whether cash receipts less than 5% of the Turnover Whether cash payment less than 5% of the total payment Is Tax audit Applicable?
More than 10 Crores Not applicable Not applicable Not applicable Yes
More than 2 crore but upto 10 Crore Not applicable Yes Yes No
More than 2 crore but upto 10 Crore Not applicable No No Yes
More than 1 crore but upto 2 Crore More than 8% or 6% of Turnover Not applicable Not applicable No
More than 1 crore but upto 2 Crore Less than 8% or 6% of Turnover Not applicable Not applicable Yes
Less than 1 Crore More than 8% or 6% of Turnover Not applicable Not applicable No
Less than 1 Crore Less than 8% or 6% of Turnover Not applicable Not applicable Yes

In case of person engaged in profession and opting for presumptive taxation under section 44ADA:

Turnover limit for the previous year Amount of profit with respect to turnover (in %) Is audit Applicable?
More than 50 Lakhs Not applicable Yes 44AB(b)
Upto 50 Lakhs More than 50% No
Upto 50 Lakhs less than 50% (sec 44ADA) Yes 44AB(d)

Due Dates for Audit

Here is the complete table of due dates for the audit report for a.y. 2023-23 along with form number.

Taxpayers Audit Form No. Statement Particulars Due Dates for Audit and Uploading Audit Report
In the case of a person covered under section 44AB (who gets his accounts audited) Form No. 3CB Form No.3CD One month prior to the due date of furnishing the income tax return.
  • A person covered by section 44AB should get his accounts audited and should obtain the audit report on or before 30th September of the relevant assessment year.
  • If not extended, the tax audit report for the financial year 2021-22 should be obtained by 30th September 2022. The due date to file an income tax return (Business requiring audit other than transfer pricing) is 31st October 2022.
  • A chartered accountant must electronically file the tax audit report with the Income Tax Department.
  • For more detail about due dates and to upload the audit report visit the official website of the income tax department. (i.e., at https://www.incometax.gov.in/iec/foportal).

Read More: GST Audit Limit Guide for Taxpayers with Turnover Above 2 Crores

Penalty for Not Getting Accounts Audited

In accordance with section 271B, an Assessing Officer may impose a penalty if a person who is required to comply with section 44AB fails to get his accounts audited in respect of any year or years. The penalty shall be lower of the following amounts:

(a) 0.5% of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in the profession, in such year or years.
(b) Rs. 1,50,000.

Nevertheless, if reasonable cause is proved, no penalty shall be imposed.

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