If you are a doctor, lawyer, freelancer, consultant or other professional earning up to Rs 75 lakh a year, you may not have to pay tax on the full amount.
Section 44ADA of the Income Tax Act allows eligible professionals to legally show only half of their total income as taxable income. This means if a person earns Rs 50 lakh in a year, they can pay tax on just Rs 25 lakh, while the remaining 50% is treated as presumed expenses.
What is Section 44ADA?
Section 44ADA is a tax rule made for professionals like doctors, lawyers, architects, consultants and freelancers. It helps them file their income tax easily without too much paperwork. Under this rule, the government assumes 50% of your total earnings are profit and the remaining 50% are expenses related to work.
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Earlier, this “presumptive taxation” system was mainly available for small businesses, but Section 44ADA extended it to professionals as well.
Section 44ADA is useful because it reduces tax filing complications, cuts paperwork, removes the need for detailed account books in many cases and helps professionals save tax legally.
Section 44ADA: Eligibility Criteria
The scheme can be used by individual professionals and partnership firms. But it cannot be used by Limited Liability Partnerships (LLPs).
Professionals eligible for this benefit are doctors, lawyers, chartered accountants, engineers, architects, interior designers and technical consultants. It also includes creative professionals such as actors, singers, directors, cameramen, music directors, writers, lyricists, editors and costume designers.
How is income calculated under Section 44ADA?
Under this scheme, the government assumes half of your earnings are spent on work-related expenses such as office rent, internet bills, travel, staff salary and other business costs.
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For example, Priya is a freelance graphic designer and her annual income is Rs 40 lakh. She spends around Rs 12 lakh on office rent, laptop upgrades, internet, travelling and other work expenses.
Under normal tax rules, her total income is Rs 40 lakh, actual expenses are Rs 12 lakh and her taxable income would be Rs 28 lakh. But under Section 44ADA, the government assumes 50% of her income as expenses. So, her presumed expenses are Rs 20 lakh and her taxable income would be only Rs 20 lakh.
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