Question 3 (b)

Presumptive income of professionals

6 marks

Time to write: About 12 minutes
Topic: Profits and gains of business or profession
Notes: Crux notes

Question

Question 3 (b) · 6 marks

Explain the provisions to compute income on an estimated basis, under section 44ADA of the Income Tax Act, where the assessee is engaged in a profession. (6)

Paper note: Set under the Income-tax Act, 1961 for assessment year 2024-25 (previous year 2023-24); answered under the Income-tax Act, 2025 for tax year 2026-27, so the year term moves forward by 3 years and every date in the question moves forward by the same 3 years, so that intervals, holding periods and ages are as printed. Every figure and name is as printed. The question names section 44ADA of the Income-tax Act, 1961; the answer gives the corresponding provision of the Income-tax Act, 2025 and says so.

Reworded from the university paper; the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.

Before you write

Read off the question and its marks

12 minfor 6 marks

Read from the question

section 44ADAThe section is named: open with what it says, then explain or apply it.

Write it in this order

Read; underline the asks; jot your points 1 min
1 Meaning and the assessees and professions covered 2 marks 3 min
2 Limits and computation 2 marks 3 min
3 Other provisions and illustration 2 marks 3 min
Check: every ask answered, key terms underlined 2 min

123

Easy marks

Step 1 opens with the meaning: a one-line definition, the quickest mark in it.

Short on time? Trim steps 1–3 evenly rather than skip one: each is capped at its own marks.

Try it first. About 12 minutes for 6 marks. Write it out, then open the solution.

Solution

Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.

Meaning

A professional may declare half of his gross receipts as income, instead of computing actual profit from books of account. The provision the question names, section 44ADA of the Income-tax Act, 1961, is section 58(2) (Table: Sl. No. 3) of the Income-tax Act, 2025. It spares small professionals the cost of detailed accounts and audit.

Who can use it

A specified assessee: a resident individual or a resident firm, other than a limited liability partnership (section 58(11)(b)). A Hindu undivided family or a company cannot use it.
Carrying on a specified profession (section 62(4)): legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, information technology or company secretary, and any other profession the Board notifies.
Gross receipts within the limit: not more than ₹50 lakh in the tax year; the limit is ₹75 lakh where cash receipts do not exceed 5% of the gross receipts. A cheque or draft that is not account payee counts as cash (section 58(9)).

How income is computed

Income = 50% of the gross receipts, or the profit the assessee claims to have actually earned, whichever is higher. No further deduction is allowed against this income: all expenses, including depreciation, are deemed to be covered by the other 50% (section 58(4)), and the written down value of assets is computed as if depreciation had been allowed (section 58(6)).

Other provisions

Lower income declared: if the assessee claims a profit lower than 50% and his total income exceeds the amount not chargeable to tax, he must keep books of account under section 62 and get them audited under section 63, furnishing the audit report by the specified date, one month before the due date of the return (section 58(3); section 63).
Advance tax: a professional under this scheme pays the whole of his advance tax in one instalment by 15 March of the tax year (section 408(2)).
Optional: the scheme is a choice; a professional with receipts within the limit may instead keep books and declare actual profit.

Illustration (our own)

An interior designer in Pune receives fees of ₹40,00,000, all by bank transfer. Under the scheme her income from the profession is 50% × ₹40,00,000 = ₹20,00,000 (unless she shows a higher actual profit). If her receipts were ₹70,00,000 with cash of only ₹2,00,000 (under 5%), she would still qualify, the limit then being ₹75 lakh.

Where the 6 marks sit

#	Component	Marks
1	Meaning and the assessees and professions covered	2
2	Limits and computation	2
3	Other provisions and illustration	2
	Total	6

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