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THE LEGENDARY SECTION 44ADA - A MASTER THREAD.
Presumptive scheme of tax
Under the presumptive scheme of taxation, profits are presumed at 50% of the gross receipts.
#remotework #44ADA #presumptivetaxation
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THE LEGENDARY SECTION 44ADA - A MASTER THREAD.
Presumptive scheme of tax
Under the presumptive scheme of taxation, profits are presumed at 50% of the gross receipts.
#remotework #44ADA #presumptivetaxation
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https://twitter.com/manansmehta5/status/1412248337995100167
Eligible Assessees
Individual, HUF and Partnership resident in India.
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Individual, HUF and Partnership resident in India.
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Turnover Limit & Eligible professions
Professionals mentioned below, whose total gross receipts are less than INR 50 lakh in a year can avail benefit of the presumptive taxation scheme.
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Professionals mentioned below, whose total gross receipts are less than INR 50 lakh in a year can avail benefit of the presumptive taxation scheme.
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1. Interior decorations
2. Technical consulting
3. Engineering
4. Accounting
5. Legal
6. Medical
7. Architecture
8. Other professionals, as mentioned below:
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2. Technical consulting
3. Engineering
4. Accounting
5. Legal
6. Medical
7. Architecture
8. Other professionals, as mentioned below:
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a. Movie artists including a producer, editor, actor, director, music director, art director, dance director, cameraman, singer, lyricist, story writer, screenplay or dialogue writer and costume designers
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b. Authorised representative meaning a person who represents another person for a fee before a tribunal or any authority constituted under any law. It does not include an employee of the person so represented or a person who is carrying on the profession of accountancy
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People working in the tech/ software field:
You will most likely fall under technical consulting ;)
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You will most likely fall under technical consulting ;)
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So how does this work?
It's simple. You show only 50% of your revenue as income. Let us explain with a simple example.
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It's simple. You show only 50% of your revenue as income. Let us explain with a simple example.
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Example:
Tony Singh, an Indian Resident, provides software development services to Avengers Inc. (A US Company). His revenue from services is INR 40,00,000. He incurs very little expenditure in India amounting to INR 2,00,000.
Income under Section 44ADA is as under
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Tony Singh, an Indian Resident, provides software development services to Avengers Inc. (A US Company). His revenue from services is INR 40,00,000. He incurs very little expenditure in India amounting to INR 2,00,000.
Income under Section 44ADA is as under
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Income under normal provisions is calculated below.
Clearly, Section 44ADA is beneficial for Tony. He has to pay tax on this INR 20,00,000 at slab rates.
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Clearly, Section 44ADA is beneficial for Tony. He has to pay tax on this INR 20,00,000 at slab rates.
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My actual expenses are much lower than 50% of my revenue. Can I still use Section 44ADA?
This is an established provision where your actual expenses are not reviewed by the Income Tax Department. You can show 50% as income, no questions asked.
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This is an established provision where your actual expenses are not reviewed by the Income Tax Department. You can show 50% as income, no questions asked.
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Other Benefits under Section 44ADA
- No need of maintaining books required under Section 44AA
- No requirement of having accounts audited under Section 44AB
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- No need of maintaining books required under Section 44AA
- No requirement of having accounts audited under Section 44AB
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When shall an assessee maintain books and get the accounts audited?:
- Income from profession is offered at a lower rate than 50% of the gross receipts
- Total income of the assessee is more than the basic exemption
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- Income from profession is offered at a lower rate than 50% of the gross receipts
- Total income of the assessee is more than the basic exemption
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What to do if you cross the magical INR 50 lakh number?
You've been using Section 44ADA for a few years now. But you expect your revenue to cross INR 50 lakhs next year.
You've come to the unfortunate conclusion that if your revenue from profession exceeds INR 50 lakh..
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You've been using Section 44ADA for a few years now. But you expect your revenue to cross INR 50 lakhs next year.
You've come to the unfortunate conclusion that if your revenue from profession exceeds INR 50 lakh..
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by even INR 1, your tax liability may triple. How do you fix this?
We've been able to work this out for clients.
It's too specific and depends too much on the facts and circumstances of each case.
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We've been able to work this out for clients.
It's too specific and depends too much on the facts and circumstances of each case.
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However, some of the options we've explored with our clients include the following:
- Splitting of revenue between different entities/ individuals
- Setting up of new entities
- Exploring options under Section 44AD
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- Splitting of revenue between different entities/ individuals
- Setting up of new entities
- Exploring options under Section 44AD
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Few more case studies available in our full article below
#freelance #startupindia #indianengineers
thegalacticadvisors.com/post/comprehen…
#freelance #startupindia #indianengineers
thegalacticadvisors.com/post/comprehen…
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