Section 44ADA

Section 44ADA — the law in short

What the courts have decided on section 44ADA, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Dinesh Chandra Das v ITO — s.44AD(6) shuts out the agent and the s.44AA(1) professional, but the whole receipt is still not income ITATCuts both waysNo later treatment found
  The Assessing Officer says my client, who runs a pathology sample collection centre, cannot use s.44AD at all and has added the entire understated receipt. Is that right?
  On the first point the department was upheld: s.44AD(6) excludes a person carrying on a profession referred to in s.44AA(1), a person earning income in the nature of commission or brokerage, and a person carrying on any agency business, and the Tribunal agreed the assessee was a commission agent so that s.44AD did not apply. On the second point the assessee got relief: the entire differential receipt could not be treated as income because expenses had to be incurred, and the Tribunal directed a net profit rate of forty-five per cent on the gross receipts the Assessing Officer had worked out.
• Neeraj Dewangan v ITO ITATHelps departmentJudgment not reachable
  I offered 8% under 44AD for consultancy work. Can the AO push me into 44ADA at 50%?
  Yes, where the work is professional in character. Liaison services, coordination of statutory no-objection certificates and related facilitation were held to require specialised technical knowledge and so to amount to 'technical consultancy', a specified profession under s.44AA(1) read with s.44ADA — which made s.44AD unavailable and the 50% rate applicable.
• Hemant Kumar Agrawal v ITO ITATHelps department
  I am a partner in a professional LLP. Can I offer my partner's remuneration under section 44ADA at 50 per cent?
  No, on this Tribunal's view. Remuneration from the firm is not the partner's own turnover or gross receipts, so section 44ADA does not apply to it. But it is still business income in the partner's hands, and expenses with a direct nexus to earning it are deductible in the ordinary way.
• Ranu Gupta v ACIT ITATHelps taxpayerJudgment not reachable
  I am a partner in a CA firm. Can I offer my remuneration from the firm under 44ADA?
  Yes. Remuneration received by a professional working partner from his firm is professional income eligible for s.44ADA. The section carries no condition that corresponding expenditure be proved, and none that the profession be carried on independently rather than through a firm.
• Rashmi Subhash Jha v ITO — 'consultancy' is not 'technical consultancy', and deduction under s.194J does not make the receipt professional ITATHelps taxpayerNo later treatment found
  The CPC has re-cast my client's s.44AD return as a s.44ADA return under s.143(1)(a) because her clients deducted tax under s.194J. Is a consultant a professional for this purpose?
  No, on this order. The word 'consultancy' does not appear in s.44AA(1), which speaks of 'technical consultancy', and technical consultancy means the rendering of technical services; a consultant is therefore carrying on a business and may return income under s.44AD. The rate at which a client deducts tax while paying the assessee is of absolutely no relevance to the character of the receipt in the recipient's hands, and the adjustment made by the Assessing Officer and the CPC under s.143(1)(a) was held bad in law.
• Arthur Bernard Sebastine Pais v DCIT (CPC) ITATHelps taxpayer
  CPC has processed my return, decided that my receipts belong under s.44ADA at 50 per cent instead of s.44AD at 8 per cent, and raised a demand. Can that be done in a s.143(1) intimation?
  No. The Tribunal held that the whole of the gross receipts had in fact been included in the return, under s.44AD, so the condition for an adjustment under s.143(1)(a)(vi) — that income appearing in Form 26AS has not been included in computing the total income — was simply absent, and the addition fell on that ground alone. It went further and said that whether the income has to be taxed under s.44AD or under s.44ADA cannot be the subject matter of a decision in processing under s.143(1)(a). Be careful what you take from this. The Tribunal expressly declined to decide whether the assessee's management consultancy receipts were assessable under s.44ADA or s.44AD, and nothing in the order holds that they were not professional receipts.
• Statutory position — s.44ADA: fifty per cent, the Rs 50 lakh / Rs 75 lakh ceiling, and the audit condition in s.44ADA(4) CBDT Circulars & InstructionsCuts both ways
  My client is a professional with gross receipts of about Rs 62 lakh, nearly all banked. Can he still use s.44ADA, and if he wants to declare less than fifty per cent, must he be audited?
  Section 44ADA deems fifty per cent of the total gross receipts of a resident individual or partnership firm (not an LLP) engaged in a profession referred to in s.44AA(1) to be the profits of that profession, where gross receipts do not exceed fifty lakh rupees — raised to seventy-five lakh rupees where cash receipts do not exceed five per cent of gross receipts. By s.44ADA(4), a professional who claims profits LOWER than the deemed fifty per cent must keep books under s.44AA(1) and get them audited under s.44AB only if his total income exceeds the maximum amount which is not chargeable to income-tax.
• Statutory position — s.44AB, provisos to clause (a): the Rs 10 crore threshold and the 5 per cent cash test CBDT Circulars & InstructionsCuts both waysNo later treatment found
  My client's turnover is Rs 6 crore and almost everything moves through the bank. Is he outside tax audit, and what counts as 'cash' for the 5 per cent test?
  The Rs 1 crore threshold in s.44AB(a) is replaced by Rs 10 crore only where BOTH tests are met — cash receipts do not exceed 5 per cent of all amounts received, and cash payments do not exceed 5 per cent of all payments made. For that purpose the statute itself deems a payment or receipt by a cheque or bank draft which is not account payee to be a payment or receipt in cash.
• Statutory position — the first proviso to s.234C(1): no interest for a shortfall caused by capital gains, casual income, first-year business income or dividend income CBDT Circulars & InstructionsCuts both ways
  My client sold a property in February and paid the whole tax on it with the March instalment. The intimation still charges s.234C interest on the June, September and December instalments. Is there a defence in the section itself?
  Yes, and it is in the section itself rather than in any circular. The first proviso to s.234C(1) disapplies the sub-section to any shortfall in the payment of tax due on the returned income where the shortfall is on account of under-estimate or failure to estimate (a) the amount of capital gains, (b) income of the nature referred to in s.2(24)(ix) — casual income such as winnings from lotteries, crossword puzzles and races, (c) income under the head 'Profits and gains of business or profession' in cases where the income accrues or arises under that head for the first time, or (d) the amount of dividend income. The relief is conditional: the assessee must have paid the whole of the tax payable in respect of that income, computed as if it were part of the total income, as part of the remaining instalments of advance tax which are due, or where no such instalments are due, by 31 March of the financial year.
• Statutory position — s.211: the four advance tax instalments, and the single 15 March instalment for a s.44AD or s.44ADA presumptive assessee CBDT Circulars & InstructionsCuts both ways
  My client returns income under s.44AD. The CPC has charged s.234C interest on four instalments. Is a presumptive assessee not entitled to pay the whole advance tax by 15 March?
  He is. Section 211(1) now splits assessees into two classes: clause (a) covers 'all the assessees, other than the assessee referred to in clause (b)', who pay in four instalments — fifteen per cent by 15 June, forty-five per cent by 15 September, seventy-five per cent by 15 December and the whole by 15 March, each cumulative and reduced by earlier instalments; clause (b) covers 'an assessee who declares profits and gains in accordance with the provisions of sub-section (1) of section 44AD or sub-section (1) of section 44ADA', who pays 'to the extent of the whole amount of such advance tax during each financial year on or before the 15th March'. Section 234C(1)(b) mirrors this exactly, charging a presumptive assessee interest only on the shortfall from the tax due on the returned income as at 15 March.
• Statutory position — s.207(2): a resident individual of sixty or more with no business income is outside advance tax altogether CBDT Circulars & InstructionsCuts both ways
  My client is 71, resident, retired, and lives on pension, interest and capital gains. The CPC intimation charges her interest under s.234B and s.234C. Is she liable to advance tax at all?
  No. Section 207(2) says in terms that the provisions of sub-section (1) shall not apply to an individual resident in India who (a) does not have any income chargeable under the head 'Profits and gains of business or profession' and (b) is of the age of sixty years or more at any time during the previous year. Once s.207(1) does not apply, there is no advance tax liability to default on, and s.234B and s.234C — which both operate on an assessee liable to pay advance tax under s.208 — have nothing to attach to.
• Income Tax Dept presumptive taxation tutorial CBDT Circulars & InstructionsCuts both ways
  What are the current 44AD, 44ADA and 44AB limits, and what does the 5% cash test mean?
  For AY 2024-25 onwards: s.44AD applies up to Rs. 2 crore turnover, or Rs. 3 crore where cash receipts are within 5%, at 8% (6% for receipts by account payee cheque or draft or electronic mode); s.44ADA up to Rs. 50 lakh, or Rs. 75 lakh on the same condition, at 50%. Audit under s.44AB is triggered at Rs. 1 crore turnover for business, Rs. 10 crore where cash receipts and cash payments are each within 5%, and Rs. 50 lakh gross receipts for a profession. The 5% cash cap is the same thing as routing more than 95% of transactions through banking channels.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.