In this Article we will try to understand as to how we can have Tax Free Income of 20 lakhs for Professionals notified under the Income Tax Act by proper tax planning.
Section 44ADA of the Income Tax Act provides for the presumptive taxation for certain notified professionals having annual Gross Receipts upto Rs.50 Lakhs. Under this Section professionals can reduce their income tax liability considerably by availing the benefit of presumptive taxation given under this section.
Under this section, 50% of the annual income is allowed as Deemed Expenses and deducted from the Total annual Income. For example if your total annual receipts from the Profession are Rs.50 Lakhs, an amount of Rs.25 Lakhs shall be allowed as Deemed Expenses from this Income and you will have to pay tax only on balance Rs.25 Lakhs.
What is more interesting is that you will not have to maintain any Books of Account and you are not required to get your accounts audited.
What is more, if you Annual Gross Income is Rs.20 Lakhs then by doing proper tax planning, you need not pay any income tax. It means professionals with annual income of Rs.20 Lakhs can enjoy Zero Income Tax.
From the total annual gross income of Rs.20 Lakhs, you will be given Rs.10 Lakhs deduction towards Deemed Expenses. Out of the Balance Rs.10 lakhs, you can claim the following deductions:
Deduction under section 80C 1,50,000
Mediclaim for Self & Parents 50,000
Interest on Home Loan 2,00,000
Deduction under Section 80E 1,00,000
Total Deduction 5,00,000
Balance Taxable Income 5,00,000
There is no income tax on balance income of Rs.5 lakhs in view of the Tax Rebate available under Section 87A of the Income Tax Act.
Rebate under Section 87 of the Income Tax provides a Tax Rebate equal to the amount of tax liability on Total Taxable Income of Rs.5,00,000
Also read : How to Earn Tax Free Salary of 20 Lakh ?
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