Part-time professionals and allied professionals, including Chartered Accountants, often consider earning income from PMS-related activities. This article explains the applicability of presumptive taxation to such income.
Understanding Presumptive Taxation
What is Presumptive Taxation?
Presumptive taxation simplifies income computation for eligible taxpayers by allowing them to declare income as a fixed percentage of turnover without maintaining detailed books of accounts.
Who Can Opt for Presumptive Taxation?
For specified professionals referred to in Section 44ADA, such as legal, medical, engineering, architectural, accountancy, technical consultancy, etc., presumptive income is computed at 50% of gross receipts, or actual profits claimed to have been earned, whichever is higher.
Eligibility Limit
Professionals can opt for this scheme if their annual income is ₹50 lakh or less.
Applicability to PMS Income
PMS Income as Business Income
If PMS income is treated as business income (rather than capital gains), presumptive taxation may be applicable. Showing PMS or share trading under business income vs capital gains involves several pros and cons.
When Is PMS Income Business Income?
In most cases, profits/losses under PMS are generally treated as capital gains transactions unless the frequency and volume of such transactions in the PMS are very high, in which case the same may get taxed under the business head.
Applicability to Part-Time Professionals
SEBI's Part-Time Registration Framework
SEBI has introduced guidelines for part-time Research Analysts (RAs) and part-time Investment Advisors (IAs). Working professionals can now start advisory work legally, and CA & CS professionals can earn additional income.
Eligibility for Part-Time Registration
The applicant shall be considered eligible for registration as part-time IA/RA if they are engaged in activity/business/employment permitted by any financial sector regulator or an activity under the purview of statutory self-regulatory organisations such as Institute of Chartered Accountants of India (ICAI).
Presumptive Taxation Considerations
For Professionals Under Section 44ADA
| Aspect | Details |
|---|---|
| Eligible Professions | Legal, medical, engineering, architectural, accountancy, technical consultancy, etc. |
| Presumptive Income | 50% of gross receipts, or actual profits, whichever is higher |
| Income Limit | ₹50 lakh or less |
| Tax Audit | Required if actual income falls below prescribed rates |
For Businesses Under Section 44AD
For businesses, presumptive income is generally computed at 6% of turnover or gross receipts received through specified banking or online modes and 8% of the balance turnover or gross receipts.
Practical Considerations for CAs
Dual Registration Options
Individuals or firms can now register as both Research Analysts (RA) and Investment Advisers (IA), maintaining segregation between activities. Professionals like CAs, CS, CMAs, and others can now register as part-time RAs with a cap of 75 clients.
Income Tax Implications
If you are earning income from PMS advisory or related activities:
- Determine Classification: Decide whether income is capital gains or business income
- Check Eligibility: Verify if you are eligible for presumptive taxation
- Maintain Records: Even under presumptive taxation, maintain basic records
- File Correct ITR: Use the appropriate ITR form
Key Takeaways
For Part-Time Professionals
- Part-time IA/RA registration is now possible for CAs and other professionals
- Client cap of 75 applies to part-time RAs
- Presumptive taxation may be applicable if PMS income is treated as business income
- Tax audit may be required if actual income falls below prescribed rates
For CAs Specifically
- CAs can only talk about ELSS in certain contexts
- Dual registration as IA and RA is permitted
- Separate registration form is available for part-time investment advisers
Expert Legal Guidance
Anuj Desai & Associates provides expert legal advisory services on presumptive taxation and PMS income for professionals. Our tax and securities law experts help professionals understand tax applicability, choose the right classification, and ensure regulatory compliance. Contact us for guidance on presumptive taxation and other regulatory matters.