Which income tax regime professional under presumptive taxation scheme should choose?

Section 44ADA of the Income-tax Act, 1961 provides a simplified tax system for professionals. The provision allows certain professionals to calculate and pay taxes on a presumptive basis, making it easier for them to comply with tax regulations. This simplified tax system applies to individuals and partnership firms engaged in various professions, including law, medicine, engineering, and architecture. It also extends to film artists, information technology specialists, and authorised representatives.

Under this scheme, professionals can declare their taxable income at a fixed rate of 50% of their gross receipts without deductions for expenses or depreciation. Till FY 2022-23, the threshold for eligibility under Section 44ADA is the gross receipt of Rs 50 lakh. From FY 2023-24, the threshold has been raised to Rs 75 lakh. The increased threshold limit is available if not more than 5% of the gross receipts is received in cash, and if it exceeds the threshold limit shall be Rs 50 lakh.

Changes to new tax regime in Budget 2023

Budget 2023 announced changes in the new tax regime. The income tax slabs under the new tax regime have been proposed to be reduced to 5 from 6, the tax slabs have been changed and tax rates have been revised. Further, the new tax regime has been made default tax regime for the individuals.

As per the proposals, the new maximum exemption limit in the new tax regime shall be Rs 3 lakh, and for every additional income of Rs 3 lakh, the next tax slab shall apply. There will be 5 tax slabs in the new regime – 5%, 10%, 15%, 20%, and 30%. The highest slab of 30% will continue to apply to income above Rs. 15,00,000. Another change relates to the rebate under Section 87A.

The budget retains the limit of Rs. 5 lakhs in the old regime but increase it to Rs 7 lakh for individuals opting for the new tax regime. Thus, if a professional’s taxable income is more than Rs 5 lakh but up to Rs 7 lakhs, opting for the new regime will be more beneficial. Another announcement relates to reducing the surcharge rate on income above Rs 5 crore for individuals opting for the new tax regime.

Should professionals opt for the new tax regime 2023?
Practising professionals eligible for the presumptive tax scheme can also opt for the new tax regime. Post changes, does the new tax regime become attractive for professionals?

Given below are examples comparing the tax liability of a professional covered in the presumptive taxation scheme under the old and new tax regime. It has been assumed that the actual income of the professional would be 60% of gross receipts. Further, he is not claiming any deduction under section 80C (life insurance, PPF, etc.), section 80D (medical insurance), section 24 (interest on housing loan), section 80G (donations), etc.

However, if a professional is claiming deductions under the old tax regime (such as Section 80C, 80D etc.) the following thumb rule may be applied:
The proposed amendments are undoubtedly positive for such professionals and leave more disposable income in their hands. However, it is important to note that switching from one scheme to another is not permitted for professionals. Accordingly, the decision to switch back to the old scheme needs to be taken after meticulously analysing all parameters, including the future ones.

(Naveen Wadhwa is a Chartered Accountant, DGM, R&D at Chirag Wadhwa is Chartered Accountant at

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