I earn income through a contractual job, and the company has suggested that I opt for Section 44ADA and declare 50% of my income as profits. However, I have read that under this section, one is required to declare either 50% or a higher amount if one’s actual profits exceed that. If I directly declare 50% of my income without detailed expense records, could this trigger scrutiny or raise compliance concerns?
Under Section 44ADA of the Income Tax Act, 1961, an assessee opting for presumptive taxation is not required to maintain books of account, provided income is declared at 50% or more of gross receipts. This relaxation is a key feature of the presumptive scheme. Accordingly, declaring income at 50% without maintaining detailed expense records is in line with the provisions and, by itself, should not trigger scrutiny.
If you choose to declare income below 50% of your gross receipts under Section 44ADA, you are required to maintain prescribed books of account as per Section 44AA. These include cash book, journal, ledger, copies of bills (for transactions exceeding ₹250) and original bills (for expenses exceeding ₹50)
In addition, your income will be subject to a tax audit under Section 44AB if your total income crosses the basic exemption limit, resulting in higher compliance requirements.
On the other hand, declaring income at or above 50% under Section 44ADA eliminates these compliance burdens, though it may lead to a higher tax outgo if your actual income is significantly lower. Therefore, it is important to evaluate both approaches and choose the one that is most beneficial in your situation.
To be sure, the aforementioned provisions hold good for the income earned during FY 2025-26 (AY 2026-27). For income earned from 1 April 2026 (FY 2026-27), the provisions of section 58 of the Income Tax Act, 2025, apply.
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Archit Gupta, Founder and CEO, ClearTax