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The post Sold a Property? Here’s How to Report Capital Gains (or Losses) in Your ITR appeared first on TAX VIC.

What is Section 44ADA of the Income Tax Act?

Section 44ADA of the Income Tax Act is a specific provision that permits some professionals to compute their income on a presumptive basis. Instead of keeping thorough books of accounts, qualifying professionals can report a predetermined percentage of their gross revenues as income for tax reasons. 44ADA can be adopted only if your total receipts during a financial year is below 75 lacs.

Eligibility for Section 44ADA

Section 44ADA is available to professionals working in particular sectors. The following categories are eligible:

1. Legal Professionals: This scheme is available to advocates, solicitors, and other legal practitioners.
2. Medical Professionals: This section applies to doctors, dentists, and other medical practitioners.
3. Engineering or Architectural Professionals: Engineers and architects are covered by Section 44ADA.
4. Accounting Professionals: Chartered accountants and accountants in practice.
5. Technical Consultancy Professionals: Professionals who offer technical, architectural, engineering, or other related services.

Presumptive Income Calculation under Section 44ADA

Section 44ADA calculates presumptive income as a percentage of gross receipts. The presumptive income for professionals covered by this clause is 50% of total gross receipts. What it means is whatever is your receipts during the year, 50% will be considered as your net profit and taxes would be calculated on that 50% portion. Do not confuse gst filing with adopting 44ADA under income tax, the both laws are different, do not overlap.Only individuals can adopt for 44ADA.

For Example: Assume a software engineer earns INR 10,00,000 in total gross earnings in a fiscal year. According to Section 44ADA, their taxable income will be INR 5,00,000 (50% of INR 10,00,000). 

Read more: 44ADA

Benefits of Section 44ADA

1. Simplified Compliance: One of the key advantages is that the compliance load is decreased. Professionals do not need to keep detailed records of accounts, which simplifies tax filing.
2. Presumptive Rate: The presumptive rate of 50% is considered appropriate and aids in the avoidance of income calculation conflicts.

When must an assessee keep books and have their finances audited?

Professionals who choose Section 44ADA are not required to keep regular books of accounts or to submit to a tax audit. They must, however, file an income tax return if their total income exceeds the maximum amount not chargeable to tax (currently INR 2.5 lakh for persons under the age of 60). In such circumstances, businesses should keep basic records of gross receipts and costs for future reference.

Implications of choosing Section 44ADA

While Section 44ADA has various benefits, professionals should carefully consider its ramifications before implementing it:

1. Higher Tax Liability: In some circumstances, the presumptive rate of 50% may result in a higher taxable income than actual income.
2. Ineligible Deductions: Professionals who choose this scheme are not eligible for deductions under Sections 10A, 10AA, 10B, 10BA, or Chapter VI-A.
3. No Carry Forward of Losses: If this scheme is chosen, losses cannot be carried forward or offset against future income.
4. No claim of depreciation, expenses etc.: since the whole idea of 44ADA is to “presume” (which is why it is called presumptive taxation), your expenses would be irrelevant as you are given the flexibility to consider 50% as your income straightaway. So do not get confused about claiming expenses when you are going to adopt for 44ADA.

Conclusion

Section 44ADA of the Income Tax Act is a helpful provision in India for qualified professionals. It streamlines tax compliance, alleviates the stress of keeping thorough books of accounts, and eliminates the necessity for a tax audit. However, before choosing for this presumptive taxation structure, professionals should carefully analyze their unique circumstances, income levels, and deductions. To make an informed decision and ensure compliance with tax legislation, it is best to consult a tax specialist.

Need Professional Guidance: info@taxvic.com

CA REETU
TAXVIC

The post Section 44ADA: Presumptive Tax Scheme for Professionals in India appeared first on TAX VIC.

Here is the most simplified version of getting to know your taxes and compliance if you are a self-employed or freelancer working for a company outside India:

1.       Tax Residency:

You may be considered a tax resident in both India and foreign countries, depending on their respective tax laws. In such cases, you may have to pay taxes on your global income in both countries. If you are an Indian resident, you need to pay taxes on all your global income.

2.       Double Taxation Avoidance Agreements (DTAA):

To avoid double taxation, India has signed DTAA with many countries. These agreements provide relief from paying taxes twice on the same income in both countries. You can claim credit for foreign taxes paid on your Indian tax return under the DTAA.

4.       Taxation and compliance of professional/business income received from outside India: 

If you are working for a project or as a consultant for any entity outside India, The amount you receive is considered as your business income or say professional income. There are some compliances you need to cross-check if you fall into this category:

i.                     GST Registration:

If the nature of work is such that it can be regarded as an Export of services, you must take GST registration irrespective of the limit of 20 lacs which means you take GST for any amount being received from the export of services as defined under GST law. Though the GST rate is Zero in the case of export of services outside India, in order to do that you must Furnish a  LUT or Bond in case exports are intended to be made without payment of taxes. You must also ensure that the payments are received in convertible foreign exchange within the prescribed time period which is one year from the date of export of services, else GST would be payable on the transaction. Once GST registration is done-filing of gst return monthly/quarterly becomes mandatory irrespective of the fact that you may be paying zero gst or there is no sale during a particular month.

ii.                   Income Tax:

The tax rates depend on the structure of your business/profession.  You may be an individual or you may have opened a company to operate and conduct your services providing business.
Typically, is you being an individual freelancer who is selling services, you have the option to adopt 44ADA if your total receipts during the year is up to 75 lacs (Till FY 22-23 the limit was 50 lacs). Under 44ADA which is also called a presumptive taxation method, the profit is presumed to be 50% of the gross receipts, and taxes are calculated on this profit. You get to save taxes and the method is quite simpler when you adopt 44ADA. Read about 44ADA in detail here.

iii.                  Import Export Code:

If you are an exporter in India, you must take Import Export Code-also called IE Code. you can apply by yourself following the instructions from this website of Government.

iv.                 FIRC:

Foreign Inward Remittance Certificate becomes important if you are an exporter or freelancer based in India since you will receive payments in the form of foreign currency. A FIRC is legal proof of the payment received from abroad in foreign currency. Therefore, as an exporter, you must request your banks to get a FIRC for every inward remittance you get from outside India. It is also important to ensure that you submit all the details correctly, especially the purpose of remittance.

Since the RBI monitors all remittances from outside India, all Authorized dealers are required to report foreign transactions to RBI’s Export Data Processing and Monitoring System or EDPMS. EDPMS is an online application that allows all Indian-authorized banks to report foreign currency remittances to RBI. This increases transparency in foreign currency transactions to and from India. In some cases, it may not seem mandatory to have FIRC but it is always a better practice to have an FIRC document as an exporter.

5.       Income Tax Filing:

You are required to file your income tax return in India even if you have paid taxes in a foreign country. You can claim credit for foreign taxes paid on your Indian tax return. Income tax law and GST laws are separate so do not mix it up when you think of compliance with income tax return filing.

The financial year which you can call a tax year is a 12-month period that begins on the 1st of April and ends on the 31st of March of the next year. No matter when you start your business, your tax year closes on 31st March and a new tax year starts on 1st April. Therefore, planning your taxes in advance is important. Assessment year is another term that you may have heard in relation to tax filing. The assessment year is the year that comes after the Financial Year. Income earned during the financial year is assessed and taxed in the Assessment year. Both FY and AY start on the 1^st of April and end on the 31^st of March. For instance, for the Financial year FY 2022-2023, the assessment year is AY 2023-24. Your income tax return filing for FY 2022-2023 will be done before July 2023 or September in specific cases.

6.       Advance tax Payment:

If your tax liability exceeds 10000 in a year, Advance tax payment becomes mandatory. You may have to pay it on a quarterly basis or before 15^th March (once in a financial year), depending on which taxation method are you adopting in income tax.

7.       Having a good Tax Consultant:

Taxation can be quite confusing if you are not from this background, and it is advisable to consult with a tax professional who has expertise in your sector of work. You can always do research, and find consultants through your network of friends who are already availing of services. Or you can always change your consultant if you feel you can switch to a better one. After all, you are paying fees and it is a matter of managing your finances and your confidential data such as bank statements, invoices etc.  

Overall, as an Indian resident working for a company outside India, it is important to be aware of the tax laws in both India and the foreign country to ensure compliance and minimize your tax liabilities. Tax Vic has experts who are already handling tax planning & Tax Saving, Compliance filings such as GST, Foreign Remittance, Tax Filing, and other compliance of self-employed individuals such as engineers, software consultants, influencers, actors etc. If you want to connect and have a consultation with our expert CA REETU connect with her directly. You may reach out to info@taxvic.com to book free tax consulting with CA.  As a compliance service provider, our aim is to simplify your finances and taxes and take away all your stress and at the same time provide you with the highest value at an affordable cost.

The post Taxes & Compliances you must know about if you provide services outside India appeared first on TAX VIC.

PRESUMPTIVE TAXATION UNDER SECTION 44AD:

Presumptive taxation under section 44AD of the Income Tax Act, 1961 is a simplified method of taxation that is available to certain eligible small taxpayers in India. Only Individual, partnership firms, and HUFs can avail this benefit.

Under this provision, eligible taxpayers engaged in certain specified businesses with a turnover of up to Rs. 2 crores can opt for presumptive taxation, whereby their taxable income is deemed to be a certain percentage of their total turnover. This means that they do not have to maintain detailed books of accounts and can pay tax on a presumptive basis. This limit of 2CR has been increased to 3CR w.e.f 1^st April 2023.

In case, you are adopting the provisions of section 44AD, your income will not be computed in the normal manner but will be computed @ 8% of the turnover or gross receipts of the eligible business for the year. The income computed under this section is considered as the final taxable income of the business and no further expenses will be allowed. The presumptive income is calculated at a rate of 8% of the gross turnover or receipts of the eligible business. However, in the case of receipts other than cash, the rate is reduced to 6%.

It is important to note that taxpayers who opt for presumptive taxation under section 44AD are not required to maintain regular books of accounts or get their accounts audited. They are also not allowed to claim deductions for any expenses or losses incurred in their business. You can declare income at a lower rate (less than 8% or 6%), however, if you do so, and your income exceeds the basic exemption limit, then you will be required to maintain the books of accounts u/s 44AA and to get your accounts audited u/s 44AB.

If you adopt section 44AD you are required to follow the same for the next 5 years and in case, you fail to do so, then the presumptive taxation scheme will not be available to you for the next 5 years. In such a case, you must maintain books of accounts and get your accounts audited as per income tax laws.

Overall, presumptive taxation under section 44AD is a simple and easy way for eligible small taxpayers to calculate and pay their income tax in India.

PRESUMPTIVE TAXATION UNDER SECTION 44ADA:

Presumptive taxation under section 44ADA of the Income Tax Act, 1961 is a special provision that is available to certain professionals in India who is a person resident in India. Certain professionals as specified are Legal, Medical, Engineering or architectural, Accountancy, Technical consultancy, Interior decoration, and Any other profession as notified by CBDT.

Under this provision, eligible professionals with gross receipts up to Rs. 50 lacs can opt for presumptive taxation, whereby their taxable income is taken as a certain percentage of their total gross receipts. This means that they do not have to maintain detailed books of accounts and can pay tax on a presumptive basis. This limit of Rs. 50 lacs has  been increased to Rs. 75 lacs from 1^st April 2023.

The presumptive income is calculated at a rate of 50% of the gross receipts of the eligible professional. This means that the taxable income of the professional is assumed to be 50% of the gross receipts, and they do not have to maintain regular books of accounts or get their accounts audited.

However, it is important to note that professionals who opt for presumptive taxation under section 44ADA are not allowed to claim deductions for any expenses or losses incurred in their profession.

Overall, presumptive taxation under section 44ADA is a simple and easy way for eligible professionals to calculate and pay their income tax in India. It reduces the compliance burden on small professionals and provides them with a simpler method of taxation.

PRESUMPTIVE TAXATION UNDER SECTION 44ADE:

Section 44AEis a system of presumptive taxation that can be adopted by a person who is engaged in the business of plying, hiring, or leasing of goods carriages and who does not own more than 10 goods vehicles at any time during the year.

For Heavy Goods Vehicles, income will be computed at the rate of Rs. 1,000 per ton of gross vehicle weight for every month or part of a month during which the heavy goods vehicle is owned by the taxpayer.

In the case of vehicles other than heavy goods vehicles, income will be computed at the rate of 7,500 for every month or part of a month during which the carriage of the goods is owned by the taxpayer. Part of the month would be considered a full month.

The presumptive taxation scheme under 44AD, 44ADA, and 44ADE is supposed to provide relief to small taxpayers in India in terms of compliance requirements and also in terms of reduced taxation. Tax Vic provides consulting services for your tax planning and tax saving purpose. Try our services if you are looking for fast, approachable, and reasonable charges. Drop us an email at info@taxvic.com.

Thank You for reading!

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