How to Pay Zero Tax for Professionals (CA, CS, Lawyers, Doctors, etc) earning Income of Rs 16 Lacs in Financial Year 2016-17- Section 44ADA Budget 2016

The Present Scheme of Presumptive Taxation is only for certain Business. Budget 2016 has introduce presumptive taxation scheme to reduce the compliance burden of the small professional tax payers having income up to Rs 50 Lacs from professions. The Professionals like Chartered Accountant, Doctors, Lawyers, Advocates, Company Secretaries, Accountant, Architect, Interior Designer, etc can avail the benefit of earning income up to Rs 16 Lakhs and Pay Zero Tax.

The Budget 2016 has introduce new section 44DA for estimating the income of an assessee who is engaged in any profession referred to in sub-section (1) of section 44AA. The Covered professionals are from legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decorationor any other profession as is notified by the Board in the Official Gazette. The Gross receipt of the professional shall not be more than Rs 50 Lakhs in previous year and sum equal to 50% of or the higher sum as declared by the professional will be chargeable to shall be deemed to be the profits and gains of such profession chargeableto tax under the head “Profits and gains of business or profession”.

The scheme will apply to resident assessee who is an individual, Hindu undivided family or partnership firm but not apply to Limited Liability partnership firm. Under the scheme, the assessee will be deemed to have been allowed the deductions under section 30 to 38. 

Further It is also proposed that the assessee will not be required to maintain books of account under sub-section (1) of section 44AA and get the accounts audited under section 44AB in respect of such income unless the assessee claims that the profits and gains from the aforesaid profession are lower than the profits and gains deemed to be his income under sub-section (1) of section 44ADA and his income exceeds the maximum amount which is not chargeable to income-tax.

Based on above new provision professionals can claim following additional Deduction

  1. Investment in 80C for Purpose of taking full benefit of 1.5 Lakhs

Deduction under 80C is related to deduction that an individual can deduct from his gross taxable income in order to reduce his tax liability by investing in specified investment. It is applicable to individuals and HUF. An assessee can get deduction under section 80C upto a maximum of Rs.150000.The qualifying investments and expenditure as deduction under 80C are investment in Insurance Policy, Post Office Time Deposit Account, Investment in Equity Linked Saving Scheme (Mutual Funds), Public Provident Fund, National Saving Certificate (Read Article Why to invest in National Saving Certificate ?), Tution Fees Paid, Bank Fixed Time Deposit, Repayment of Principal of Housing Loan, SukannyaSamriddhi account, to Read more about  Deduction under section 80C of Income Tax Act - Specified investment / Expenses Click here.


2.Investment in National Pension Scheme up to Rs 50 Thousand


Finance Minister ArunJaitley in Budget 2015-16 introduced an additional income tax deduction of Rs. 50,000 for contribution to the New Pension Scheme (NPS) under Section 80CCD. NPS is a voluntary pension scheme, which is regulated by the Pension Fund Regulatory and Development Authority.This extra deduction of Rs. 50,000 on NPS will increase the total deduction allowed under Section 80C and 80CCD of Income Tax Act to Rs. 2 lakh. In Budget 2016, the finance minister has made withdrawals from NPS on maturity tax free upto 40% of the total corpus accumulated. Currently, none of the withdrawals were tax-free unlike other competing instruments such as PPF and EPF where the total withdrawal was tax -free. This is a major step towards making the NPS scheme more attractive and bringing it on par with the other EEE pension schemes. The Budget 2016 proposes to provide a uniform tax treatment to the recognized provident fund, national pension system and superannuation fund. 
It is proposed that 40% of the pension wealth received by an employee from the National Pension System Trust shall be exempt. 

Read Related Article National Pension Scheme Return Analysis and Plan Comparison

Read Related Article Save Tax by Additional deduction under National Pension Scheme


3.Home Loan Interest and Rent Allowance 80GG up to Rs 2.5 Lakhs or 60 thousand

For employees who don't get HRA benefits and for professionals who want to claim rent paid for house, the FM raised the deduction against house rent from Rs 2,000 per month to Rs 5,000. This would result in tax savings in the range of Rs 3,708 to Rs 12,204, depending on the income slab. The deduction can be claimed in section 80GG

Further in Budget 2016 First time home buyers to get additional deduction of Rs 50,000 on interest for loan uptoRs 35 lakh. This is covered under section 24 of Income Tax. This additional deduction has been given on interest for loan up to Rs 35 lakh, provided the house value doesn't exceed Rs 50 lakh.  For, the 2016-17 Budget proposes tax relief on interest payment on home loan if the property bought, or under construction, is completed within 5 years from the end of the financial year in which the loan was availed instead of the current 3 years. Assuming a loan of Rs 35 lakh to be paid over 20 years, the annual deduction comes to around Rs 2.5 lakh, including the Rs 2 lakh currently available. At 9%, the interest outgo in the first year would be Rs 3.12 lakh. So, the buyer will save Rs 75,000 if he is in the 30% tax-bracket.


4.Medical insurance for Self, Parents and Dependents up to Rs 50 thousand

Payment of premium on life insurance policy and health insurance policy not only gives insurance cover to a taxpayer but also offers certain tax benefits. Medical insurance premium paid by assessee, being individual/HUF by any mode other than cash. Sum paid by assessee, being individual on account of preventive health check-up. Medical expenditure incurred by assessee, being individual/HUF on the health of a very senior citizen person provided that no amount has been paid to effect or to keep in force an insurance on the health of such person. Read More about Income Tax Benefit for taking Life Insurance Policy 80C, Health Insurance 80D, and Expenditure on Medical Treatment 80DD


5.Relief under Section 87A

Budget has increase the relief under section 87A from Rs 2000/- at present to Rs 5000/-. So effectively if taxable income is less then Rs 5 Lakhs an individual can Claim relief of Rs 5000/- in taxes paid. If we consider 10% slab rate it turnout to be Rs 50000/- as additional benefit which can be claimed in this Section


Form the Above Picture it is clear that if the Professionals Like CA, CS, Lawyers, Doctors, etccan plan in proper manner for the year 2016 -17 financial year he can not only save taxes but can also plan an investment in Resident Property if he is not owing one. Further Retirement benefit NPS seems to be better option considering current changes in Budget 2016.


For any query you can write to . Before making any decisions do consult your Professional / tax advisor.  Author does not take any responsibility for misrepresentation or interpretation of act or rules. Neither the author nor the firm accepts any liability neither for the loss or damage of any kind arising out of information in this document nor for any action taken in reliance there on.

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article author puneetbrar
Posted On:  2 years ago

Sir is this applicable in this assessment year ( 2016-17) and what form i have to fill can you please let me know

article author cb prasad
Posted On:  10 months ago

TPT, COUNTER Insurgency, COMPOSITE PERSONAL maintenance allowances and leave ration allowance are taxable. please help

article author

CA Chirag Chauhan

Tax Expert
Chartered Accountant, CA Chauhan


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