Content Creators Under Scrutiny for Misusing Presumptive Income Rules
Several content creators, scriptwriters, consultants, and other professionals have recently come under investigation by the Income Tax Department for filing their returns under a section of the law that generally results in a lower tax outgo.
The department has pointed out that such individuals should ideally file under Section 44ADA of the Income Tax Act, which is mainly designed for professionals, rather than Section 44AD, which provides a simplified presumptive taxation scheme for small businesses.
However, this has created a problem for many taxpayers. They argue that they do not fall within the specific list of “professionals” notified under the law who are eligible for presumptive taxation under Section 44ADA. Section 44AA defines these professions to include legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, film artists, authorised representatives, company secretaries, and professionals in the information technology sector.
Under Section 44AD, small businesses with a turnover below Rs. 2 crore can declare 6–8% of their gross receipts as taxable income without maintaining books of accounts, provided no further deductions are claimed. By contrast, under Section 44ADA, notified professionals can report 50% of their gross receipts as taxable income if their professional receipts do not exceed Rs. 75 lakhs.
Tax practitioners note that the current wave of questioning has arisen because the tax department’s system has identified cases where returns were filed under Section 44AD, while the taxpayers’ clients deducted 10% TDS under Section 194J (professional services) rather than 2% TDS under Section 194C (contractual payments). In many cases, clients appear to have intentionally applied the higher TDS rate to avoid disputes with the department ironically triggering enquiries against the professionals themselves.
The fact that tax has been deducted under a specific provision Section 194J and the income has not been declared under Section 44ADA, should not, by itself, form the basis for selecting instances for investigation. TDS under Section 194J does not, in itself, make an assessee eligible for taxation under Section 44ADA. The benefit under Section 44ADA is strictly limited to professionals specified under Section 44AA(1). Notably, certain professionals, such as those related to sports, may fall under the ambit of Section 194J without being Section 44AA; hence, they are outside the scope of Section 44ADA.
The supreme court has constantly interpreted the term “business” in a broad sense, extending beyond only trade or manufacturing. It incorporates professionals, vocations and callings that are carried out continuously and systematically with the application of skill and effort to earn income. Consequently, until a person is engaged in a profession specifically listed under Section 44AA(1) or derives income from commissions or brokerage, the presumptive taxation scheme under Section 44AD remains accessible and is not restricted.