Section 44ADA--overview

The professionals have been brought under the ambit of Presumptive Taxation for the first time in history of Indian Taxation by virtue of Section 44ADA proposed in the Union Budget 2016. It would be a welcome step provided that the proposed Net Profit (NP) rate would be rational.

The Presumptive NP rate of 50% on Professionals and their Partnership Firms, as proposed in the Union Budget 2016 u/s 44ADA, is on very higher side and may cause very high tax incidence on such professionals and their partnership firms. Net Profit Rate should be fixed at a maximum of 30% instead of proposed 50%.

Besides, interest and salary to the partners should be allowed to all partnership firms including firm of professionals out of the Presumptive NP of the firm, as per prevailing provisions of Sec 44AD in force applicable to business partnership firms at present. Its disallowance, as proposed in Finance Bill 2016 may create a havoc for professionals partnership firms, where huge amount is drawn as salary by working partners in accordance with the partners’ remuneration limits as suggested u/s 40(b) of the I.Tax Act.

It is also worthy to mention here that the rate of Presumptive income on Professionals was recommended @33.33% in the draft report of Justice R.V Easwar Committee to simplify provisions of the Income Tax Act in this January month itself, which (33.33%) was widely opposed.

But the bureaucrats in corridor of North Block remembered only to cover the professionals under presumptive taxation, following only one part of the recommendations made in the report of Justice R.V Easwar Committee. However, these bureaucrats set aside the recommended NP rate of 33.33% on such professionals, while drafting the budget proposals and chosen for much higher rate of 50% in a very abrupt and tyrant manner.

The presumptive NP rate on professionals and their partnership firms should be capped to 30% which is also close to the rate of 33.33% recommended, after considering the finer details, minor aspects and lot of research, by Justice R.V Easwar Committee recently.

How Hypothetical and absurd position, provisions of Section 44ADA of Income Tax Act would be creating. The provision are only applicable on professional and this case highlights the case of partnership firms.


The provisions provides as follows:

a) 50% of the Gross Receipts would be treated as the Net Income of the assessee firm.

b) No deduction towards Remuneration and Interest would further be allowed to the firm.

c) The deduction towards Interest and Remuneration would be deemed to be allowed to the firm.

d) The Remuneration and Interest would again be taxed in the hands of the partners as Individual Income.