India taxes individuals based on a system of income slabs. Different tax rates are assigned to different ranges of income.&nbsp;

Understanding tax slabs is crucial for several reasons.

As a person earns more, the tax liability also increases, creating a fair and progressive tax system in the country. To achieve this, the government regularly updates and announces changes to tax slabs in the Union Budget.

The income tax slabs differ between the old and new tax regimes. Let's explore the specific slab rates applicable to Individuals for FY 2022-23 (AY 2023-24) and FY 2023-24 (AY 2024-25).

Income Tax Slab Rates For FY 2023-24 (AY 2024-25)&nbsp;

Rates of the old tax regime slabs are categorized into three groups:

The new tax regime applies uniform tax rates to all individuals, eliminating the age-based distinctions in the old system. The new tax regime slabs 2023-24 are outlined below.

Applicability of Surcharge for FY 2023-24 (AY 2024-25)

The income tax <a href="https://incometaxindia.gov.in/charts%20%20tables/tax%20rates.htm">surcharge</a> is an extra fee imposed on top of the <a href="https://www.skydo.com/blog/how-to-file-taxes-under-44ada?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">regular income tax</a>. An additional tax is applied to individuals with higher income earnings in a specific financial year. Let’s look at the applicable surcharge rate under the Old and New tax regime.

However, 25% or 37% surcharge rates will not apply to income under the following sections.

Consequently, the highest surcharge rate on the tax payable for such incomes will be 15%.

Starting from the Assessment Year 2023-24, the maximum surcharge rate on tax payable for dividend income or capital gain specified in Section 112 will be capped at 15%.&nbsp;

A 4% Health and Education cess will be applied to all cases’ total income tax liability and surcharges.

Comparison of tax rates under the New tax regime and the Old tax regime for FY 2022-23 (AY 2023-24)

How do you calculate the income tax from the income tax slabs?

Let’s understand the calculation with an example.

Sanjana, aged 35, has a total taxable income of Rs. 8,50,000. She has opted for the old tax regime. Her income includes income from salary, interest and rental income. Deductions under section 80 have been reduced. Now, Sanjana wants to know her <a href="https://www.skydo.com/blog/gst-requirements-international-service-sales?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">tax liability</a> for FY 2022-23 (AY 2023-24).

*Sanjana, an individual taxpayer under the age of 60, enjoys an income exemption limit of up to Rs 2,50,000. Other taxpayers, i.e., senior and super senior citizens, have higher income tax exemption thresholds of Rs 3,00,000 and Rs 5,00,000, respectively.

Please be aware that the tax rates in the New Tax Regime are uniform for all categories of individuals, including regular individuals, senior citizens, and super senior citizens.&nbsp;

Individuals with a net taxable income of up to Rs 5 lakh qualify for a tax rebate under section 87A, resulting in zero tax liability in both the New and Old tax regimes. It's important to note that in Budget 2023, the rebate under the new regime has been extended, making income up to Rs 7 lakh tax-free from the FY 2023-24 onward.

Let's delve into effective strategies to maximize your investments while minimizing the associated tax burdens.

ELSS mutual funds provide a dual benefit of potential capital appreciation and tax savings under Section 80C of the Income Tax Act. Investing in ELSS reduces taxable income and offers a path for long-term wealth growth.

2. Explore tax-efficient investment avenues

Health insurance qualifies for tax benefits under Section 80D. You can claim tax benefits on premiums paid - up to Rs 20,000 for senior citizens and Rs 15,000 for others. For example, if you pay Rs 15,000 for your policy and Rs 20,000 for your senior citizen parent, you can claim a total tax benefit of Rs 35,000.&nbsp;

Maturity value is tax-free for sums received under critical illness insurance policies.

This strategy entails selling loss-making assets to realize the capital loss and using it to offset the gains earned by profit-making assets.

For instance, if you have a loss of Rs. 20,000 in Stock A and a gain of Rs. 30,000 from Stock B, you can sell Stock A during a market downturn to offset the gains. This way, you can reduce your taxable income. The saved amount can be reinvested for portfolio growth.

Ensure that tax loss harvesting aligns with your overall financial goals and plan by considering a discussion with a financial professional or tax advisor.

<a href="https://www.skydo.com/blog/how-can-the-right-chartered-accountant-help-your-tech-export-business?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Consult financial professionals or tax advisors</a> for effective tax planning and strategic advice. Their expertise can provide tailored insights aligned with your financial goals and ensure a well-informed approach to optimize your tax situation.

If you need help deciding what is right for you, we will connect you with our panel of Indian and US-based CA / CPAs. Feel free to reach out to us.

Q1. How is a taxpayer's income categorized?

Ans: A taxpayer's income falls into five categories outlined in Section 14 of the Income Tax Act. These include Income from salary, Profits from a business or profession, Income from House Property, Capital Gains, and Income from Other Sources.

Q2. Is it possible to avail of 80C deductions while choosing the new tax slabs 2023-24?

Ans: No, under the new tax regime, several deductions and exemptions, including those under section 80C, are not permitted. Opting for the new tax regime means foregoing the ability to claim deductions under section 80C.

Q3. What do "Previous Year" and "Assessment Year" mean?

Ans: We have two important terms in income tax provisions: (i) Previous Year and (ii) Assessment Year. Previous Year is when you earn income, typically from April 1st to March 31st. The year right after the Previous Year, from April 1st to March 31st, is called the 'Assessment Year.'

For example, the Previous Year is from April 1, 2023, to March 31, 2024 (FY 2023-24). The corresponding Assessment Year is from April 1, 2024, to March 31, 2025 (AY 2024-25).

Q4. What is the tax exemption limit for calculating income tax rebate under section 87A?

Ans: For FY 2023-24 (AY 2024-25), the rebate limit has been increased to Rs. 7,00,000 under the new tax regime. This means a resident individual with taxable income up to Rs 7,00,000 will receive Rs 25,000 or the amount of tax payable (whichever is lower) as tax relief. However, the old tax regime's threshold limit will remain the same, i.e., Rs 12,500 if taxable income is up to Rs 5,00,000.

Q5. How much is the standard deduction for FY 2023-24?

Ans: You can claim a standard deduction of ₹50,000 to the income taxable under the head ‘Salaries.’ The standard deduction is a tax benefit that can be claimed irrespective of the amount spent on Transport or Medical Allowance. It applies to individuals earning a salary or pension income.

Prepare for the upcoming year's tax season by understanding the tax slabs for 2023-24 and optimizing your tax savings. 

Tax Slabs in 2023-24: Plan Ahead for Next Year Tax Savings

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Rohit Khuranna

An exchange rate is the rate or value at which one currency can be exchanged for another. When a layman tries to exchange their currency from dollars to rupees, they might go to a bank or sign up through an online intermediary. If you have tried to exchange your current currency from a bank, you might have noticed that the conversion rate charged by the banks may be higher than the number they previously showed.

However, the same does not apply to some online intermediaries like Skydo, and this is because we provide customers with a live foreign exchange rate. A live FX rate, unlike bank rates, is updated in real-time. So why do bank rates become more expensive than live FX rates, and how does this impact you?

Why bank exchange rates are different from the live FX rates?

Banks trade currencies with customers, as well as each other. However, the rates for both differ– the bank exchange rate is applied when banks are trading with customers, and the interbank rate applies when banks are trading with each other.&nbsp;

The interbank rate is more of a wholesale rate since banks trade with each other currencies in bulk. However, a regular consumer pays a small fee over and above paying the exchange rate. For example, if the interbank rate for buying USD is 1.00, the bank exchange rate for customers to buy USD will be 1.03.&nbsp;

Similarly, if a customer tries to sell USD, the rate offered to them will be 0.97. In each case, the bank earns 0.3 cents for acting as a middleman and helping you facilitate currency exchange. This 6-cent difference is known as the spread, to earn a profit from forex activities.&nbsp;

However, just like the currency, the spread is not constant. Various factors affect the increase or decrease in a forex spread, including the transaction amount itself. Banks charge a lesser spread for larger forex transactions to encourage bulk transactions.&nbsp;

A lower transaction amount might mean you end up paying a larger proportion of the amount in bank charges. Similarly, banks might have a smaller spread for frequently exchanged currencies and charge a larger spread for rarer currencies.

In addition to the spread, banks might charge a flat transaction fee or a certain percentage of the transaction for exchanging currency. This fee, too, is charged to drive profits.

Banks charge fees to secure themselves against currency risks (that might occur due to factors like war, inflation in other countries, or major political changes). Extra charges such as flat fees help banks achieve this while assuming less risk.&nbsp;

Banks have higher operational expenses of handling and processing cash than online brokers and intermediaries. Hence, online intermediaries pass on the cost savings to you in the form of lower fees.

The exchange rate market is highly volatile and is affected by global macroeconomic factors, other than simple demand and supply. Banks need to account for potential losses by adjusting their spread.&nbsp;

Currencies expected to depreciate or lower in demand usually see an increase in their spread for banks to mitigate their losses.&nbsp;

Indian banks must adhere to the rules of the Reserve Bank of India. These rules might be related to bank rates, insuring against risk, and adherence to them increases compliance costs. To some extent, these costs are borne by customers when they pay a transaction fee or a higher spread.&nbsp;

The RBI’s rules are subject to change depending on global factors and its own estimation of the supply and demand in India, which means the transaction fees are dynamic and never fixed.&nbsp;

How Skydo Can Help You to Save Your Money

Compared to this, carrying out your foreign exchange transaction using a service like Skydo can benefit you.

How, you ask? We operate on <a href="https://www.skydo.com/blog/get-the-most-out-of-your-forex-savings-with-skydo?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">live FX rates</a> and charge zero margins or hidden transaction charges. Yes, you read that right. Unlike the volatile transaction fees, spreads, and other charges levied by banks, Skydo has a flat fee and provides a <a href="https://www.skydo.com/blog/get-the-most-out-of-your-forex-savings-with-skydo?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">transparent pricing system</a>.

Similarly, our clear and easy-to-understand thresholds inform you of exact costs compared to the ever-changing bank rates that regularly need a cost-benefit analysis.&nbsp;

Some of our other important features include:

In short, in an age of convenience and quick transactions, going through a bank to exchange your currency might be an outdated solution for your business needs. Recognizing the benefits that a service like <a href="https://www.skydo.com/?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=demo_click">Skydo</a> can provide is important for your convenience but crucial to financial operations.&nbsp;

Our user-friendly interface helps you instantly set up an account, create invoices, and start doing transactions in no time. Businesses doing bulk forex transactions may save up to Rs 10 lakh annually, among other benefits.

<a href="https://www.skydo.com/?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=demo_click">Book a free demo</a> to experience fast, cost-saving, and transparent cross-border payment experiences.&nbsp;

Ans: An exchange rate is the rate at which one currency can be converted into another. For example, the exchange rate to convert rupees into dollars can be 1 Re= 83 USD.

Q2. What fees do banks charge for currency exchange?

Ans: Multiple factors compel banks to charge different types of rates to exchange currencies. The spread is a charge levied to cover the cost of exchanging the currency as a broker. There are also flat fees or a percentage of the transaction charged for banks to cover operational costs, handling fees, etc. Charges to ensure safety against risk and compliance with RBI guidelines are other reasons banks charge a lot.

Q3. What is the difference between an exchange rate and the real effective exchange rate?

Ans: An exchange rate is the rate used to convert one currency from another. The Real Effective Exchange Rate (REER) gauges the value of a country's currency in relation to a weighted average of the currencies of countries that are its primary or general trading partners. While the exchange rate is a straightforward measure, the REER is much more comprehensive and shows how a nation’s exchange rate holds up compared to other countries while also considering the inflation rates.

Ans: NEER, also known as the Nominal Effective Exchange Rate, measures how a country’s exchange rate holds up against other foreign currencies. Real Effective Exchange Rate, or REER, on the other hand, is a comprehensive measure because it also accounts for the price level, inflation rates, and other factors.&nbsp;

Ans: Several factors, such as demand and supply of the particular currency, global conditions such as war or famine, political stability, central bank interventions and policies, and interest rates, determine a country’s exchange rate.

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Welcome to our comprehensive guide that sheds light on the TDS rate chart for the financial year 2024. As we enter the fiscal year 2024, understanding the intricacies of Tax Deducted at Source (TDS) becomes paramount.

Unravelling the complexities of <a href="https://www.skydo.com/blog/minimise-TDS-foreign-payments?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">TDS</a>, this blog aims to empower you with the knowledge to navigate fiscal responsibilities confidently.

Here is the updated TDS rate chart for FY 2023-24:

TDS Rate Charts Where the Company is a Domestic Company

Here is a detailed table for TDS rate charts for a domestic company registered in India:&nbsp;

TDS Rates Applicable for a company other than a Domestic Company

Here is a detailed table for the TDS rates applicable for a company other than a domestic company:&nbsp;

TDS is a system where tax is deducted at the source of income, and compliance with the prescribed rates is essential to ensure smooth financial operations. It is important to adhere to the prescribed TDS rates, a legal requirement under the <a href="https://www.skydo.com/blog/withholding-tax-india-all-you-need-to-know?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Income Tax Act</a> of 1961, as failure to comply may result in penalties and legal consequences.

Hence, knowing the correct TDS rates is essential for businesses to carry out financial transactions smoothly. It helps in accurate budgeting and financial planning and prevents disruptions due to legal issues.&nbsp;

Ans: The current TDS rate chart depends on the nature of the expense under specific sections. You can find more details about the TDS rate chart by navigating to the section ‘TDS Rate Chart for FY 2023-24’ in the above blog.&nbsp;

Q2. What are the TDS rates for freelance services?

Ans: For freelance services, TDS is deducted under the ‘Professional and Technical Services’ in the ITR, which is 10% of the total payments received.&nbsp;

Ans: Tax Deducted at Source (TDS) is a mechanism through which the government collects income tax at the source of income itself. On the other hand, Tax Collected at Source (TCS) is a similar concept to TDS, but it involves the collection of tax at the source of the sale of specified goods or services.

Ans: Under section 194N, cash withdrawal exceeds a certain amount (limit- Rs 1 crore). In case Rs 20 lakh or more is withdrawn by the person who has not filed an ITR for the last three years, for which the due date of filing the ITR has expired, the TDS rates shall be applicable as per the below slab:a) amount more than Rs.20 lakh but up to Rs. 1 crore: 2%b) amount exceeding Rs. 1 crore: 5%

Ans: TDS is calculated using the following formula: TDS Amount = Payment Amount x ( TDS Rate/100 ​ )

Ans: Tax Deducted at Source (TDS) in salary refers to the process of deducting income tax from an employee's salary at the source itself, i.e., by the employer.

Q7. Does the TDS rate change every financial year?

Ans: It is not mandatory to change the TDS rates every year. However, every year, when the Finance Minister presents the budget, various changes are generally introduced in relation to TDS.&nbsp;

Ans: A Tax Deducted at Source (TDS) certificate is an official document issued by the deductor (the person responsible for deducting TDS) to the deductee (the person from whose income TDS is deducted). The certificate details the TDS deducted and deposited with the government during a particular financial year.

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Every business wants speed and convenience. It is the mantra In the contemporary world of commerce, and cash transactions have naturally taken a backseat. Even outside the capital markets, we see the reign where credit and trust are a currency. Transactions of all sizes are hinging on a fundamental pledge—the buyer commits to settling the bill later.&nbsp;

Today, physical currency only changes hands with this financial choreography, the bill of exchange.

A bill of exchange is a written, unconditional commitment by one party, known as the drawer, to another party, the drawee, to pay a certain sum of money to a third party, the payee, either on demand or at a specific future date. This financial instrument serves as a guarantee of payment for goods or services provided.

The bill of exchange has been a fundamental legal instrument in global trade, binding the exporter and the importer and enabling smooth transactions between parties across international borders.&nbsp;

In case of dishonor, the payee can seek legal recourse to enforce payment, utilizing the legal provisions outlined in the governing framework to ensure the settlement of the outstanding amount and any associated damages or penalties.

Let's consider a scenario where a Bengaluru-based software company (Exporter) is providing software services to a Silicon Valley company (Importer). The Bengaluru company, acting as the exporter, creates a Bill of Exchange. This document includes details such as the total amount due, the due date, and other relevant terms.

The Bengaluru company is the drawer, the Silicon Valley company is the drawee, and the bank may be involved as a financial intermediary. The Silicon Valley company reviews the document and, if satisfied, accepts the Bill of Exchange, acknowledging its commitment to pay the specified amount on the due date.

On the due date specified in the Bill of Exchange, the Silicon Valley company makes the payment to the Bengaluru company or through the bank. The transaction is considered complete, and the Bengaluru company delivers the software services as agreed.

A bill of exchange offers several key advantages, making it a valuable tool in commercial transactions and international trade.

A bill of exchange comprises several key components that define its structure and functionality, ensuring clarity and enforceability within commercial transactions.

A bill of exchange involves three parties: the drawer, drawee, and payee, where the drawee must pay the payee. In contrast, a promissory note is a two-party instrument in which one party unconditionally promises to pay a specified sum to the other party.&nbsp;

A bill of exchange is suitable for commercial transactions involving the sale of goods or services on credit, providing a structured framework for payment and trade. On the other hand, a promissory note is more appropriate for individual lending arrangements, personal loans, or informal credit agreements, facilitating clear repayment terms between the lender and the borrower.

<a href="https://www.skydo.com/blog/guide-for-tech-exporters-on-global-compliance?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Regulatory compliance</a> is essential when handling bills of exchange formats involving stringent legal requirements and documentation practices.

The bill of exchange is crucial for managing credit, fostering trust, facilitating international trade, providing financing opportunities, and offering legal protections. Thus, it streamlines complex financial transactions and contributes to the smooth functioning of global trade networks.

By integrating a bill of exchange into their operations, businesses can enhance their financial flexibility, minimize risks, and foster stronger relationships with their trade partners, thereby ensuring a seamless and secure exchange of goods and services on a global scale.

Q1. What do you mean by a bill of exchange?

Ans: A bill of exchange is a written order from one party to another, directing the second party to pay a specific sum of money to a third party on a specific date or demand.&nbsp;

Q2. What are the legal provisions regarding bills of exchange?

Ans: The negotiable instruments law of a specific country typically governs the legal provisions for bills of exchange.&nbsp;

Q3. Who is an acceptor of a bill of exchange?

Ans: An acceptor of a bill of exchange is the individual or entity formally agreeing to honour the obligation stated in the bill. The acceptor assumes the primary liability for paying the specified amount indicated in the bill, either on a fixed date or upon demand.

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LUT full form is Letter of Undertaking. An Indian exporter can use a LUT to ship goods and services outside India or Special Economic Zones (SEZs) without paying the Integrated Goods and Services Tax (IGST) upfront which otherwise applies to the export of goods and services.&nbsp;

This blog answers all the questions about LUT including LUT full form, definition, eligibility, application, and renewal process.

Exports fall under the zero-rate supply category meaning they are exempt from Goods and Services Tax (GST). However, for this to work, exporters have to pay IGST upfront and claim a refund later.&nbsp;

This is a time-consuming and complex process. They must fill out multiple forms online and upload supporting documents like export invoices and shipping bills. Additionally, if certain information is missing or there is a mismatch, the claim could be rejected.

LUT is a formal declaration submitted to GST authorities by exporters through which they can export goods and services <a href="https://www.skydo.com/blog/understanding-gstin-requirements-for-export-businesses-in-india?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">without paying IGST.</a> It’s a digital process, quick, and hassle-free, and exporters won't face a liquidity crunch.

To be eligible for availing the benefits of a Letter of Undertaking (LUT), an exporter must meet the following criteria.

According to the CGST Rules of 2017, a registered individual can provide a LUT in the GST RFD 11 form to export goods or services without paying integrated tax as long as they meet all the eligibility requirements.

Till 2020, the LUT filing process was manual. Exporters had to fill out the LUT application form on the business letterhead and submit one copy to the jurisdictional GST commissioner positioned in their principal place of business. Another copy had to be submitted to the customs clearing authority along with other export documents.

The online process is much smoother and exporters can get their LUT by following these exact steps:

Here are step-by-step instructions on how to apply for an LUT.

Step 1: Log in to the <a href="https://services.gst.gov.in/services/login">GST Portal</a>&nbsp;using credentials

Step 2: Navigate to the 'Services' tab and click 'User Services'. From there, you can select 'Furnish Letter of Undertaking(LUT)'.

Step 3: Choose the financial year for which you are applying for the LUT from the 'LUT Applied for Financial Year' drop-down menu. For instance, you can select 2024-25.

Exporters can also upload a Letter of Undertaking prepared manually. Click on "Choose File" to select it from your computer if used it in the previous financial years. The document must be in PDF or JPEG file formats and 2 MB maximum file size.

In the next screen, tick on the self-declaration checkboxes on the GST RFD-11 LUT application form to proceed. Here's what the three points are:

a) To&nbsp; export the goods or services within three months from the date of issue of the export invoice

b) To observe all the rules of the GST Act for the export of goods and services

c) To pay IGST plus interest of 18% per annum from the date of invoice to the date of payment if they do not export

Step 5: Next, you must provide the names, occupations, and addresses of two independent witnesses in the boxes. This information is mandatory.

Step 6:&nbsp;Enter the place of business in the "Place of Filing LUT" textbox and enter the name and place of the authorized signatory. An authorized signatory can be the proprietor of the company, the managing director or the company secretary.

Click on "Save." After the form is saved, click on the "Preview" button to ensure the form is filled correctly.

Step 7:&nbsp;On the same screen, there is an option to sign and file the form using either DSC or EVC.

If they have a registered Digital Signature Certificate (DSC), choose the "SIGN AND FILE WITH DSC" option. Use the DSC of the selected authorized signatory to sign the form. A warning message box will appear, click on "Proceed." The system will automatically generate a unique Application Reference Number (ARN).

The other option to file the form is to use an Electronic Verification Code (EVC). So if they don't have a DSC, they can choose this method to furnish LUT. Click on "SIGN AND FILE WITH EVC," and a One-Time Password (OTP) will be sent to the registered mobile number and email address of the authorized signatory. Use the OTP to sign the form, a warning message appears, and click "Proceed." Next step, the system automatically generates a unique Application Reference Number (ARN).

After submission, a confirmation message appears on the screen with a DOWNLOAD button to save the acknowledgement on their device. The GST Portal also sends the ARN via SMS and email to the registered mobile phone number and email address respectively. You can click on the DOWNLOAD button to download the acknowledgement.

LUT is valid for one financial year meaning if an exporter wants to continue taking advantage of zero-rated supplies under GST, they must renew their LUT annually. If they do not renew LUT, they must pay IGST upfront when you export the next time.

The process to renew LUT is similar to the steps above. Here's a quick walkthrough:

After the authorities verify the application successfully, the Application Reference Number (ARN) will be sent to the authorized signatory's mobile number and email address.

What Documents are Required for LUT Registration and Renewal?

If you, as an exporter are filing LUT for the first time, you must complete the LUT registration first. Here is the list of documents required for registration:

After successfully registering for the LUT, you can fill out the GST RFD-11 form to file LUT.&nbsp;

From the next year, you can renew the LUT by following the same process above. You only have to upload a copy of the previous LUT as an additional step.&nbsp;

Receive Seamless Export Payments with Skydo

With a Letter of Undertaking (LUT), exporters don't have to bear tax payments on exports. This way they save money in an easy manner and can use the funds for other business operations. While LUT helps them save money, Skydo helps them get paid by overseas clients on time. Skydo creates virtual accounts where their clients can transfer money instantly. These accounts are linked to their bank account in India where the money gets credited automatically.

When they use a virtual account to accept payments, they don't have to pay<a href="https://www.skydo.com/blog/swift-money-transfer-ultimate-guide"> SWIFT</a> fees which are levied on international bank transfers. Moreover, they don't have to bear hidden charges as Skydo follows a transparent pricing policy. Skydo is the perfect partner to expand an exporter’s international trade.<a href="https://www.skydo.com/"> Sign up for free</a> and start accepting payments now!

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As a freelancer or professional in India, managing your taxes doesn't have to be complicated. The government has introduced a simpler way through Section 44ADA of the Income Tax Act - the presumptive taxation scheme that lets you pay taxes on just 50% of your gross receipts, regardless of your actual expenses.

No more maintaining detailed books or tracking every expense. Whether you're a doctor, architect, lawyer, or freelance consultant, this scheme could significantly simplify your tax compliance while potentially reducing your tax burden.

In this guide, we'll break down everything you need to know about Section 44ADA - who can use it, the limits, how to file your income tax return, and common mistakes to avoid.&nbsp;

What is Section 44ADA of the Income Tax Act?

<a href="https://incometaxindia.gov.in/Acts/Finance%20Acts/2003/102120000000009718.htm">Section 44ADA</a> is a simplified tax calculation method for professionals and freelancers. Instead of tracking every expense and making complex calculations, these normal provisions assume that half of what you earn is your net profit.

Here's how it works: You earned ₹20 lakhs from your consultancy work this year. Under Section 44ADA, You can declare ₹10 lakhs (50% of your earnings) as your taxable income. The remaining ₹10 lakhs are considered to cover your business expenses - no questions asked, no proof needed.

This straightforward approach saves you from the hassle of maintaining detailed expense records while potentially reducing your tax burden.

Who is eligible for Section 44ADA of the Income Tax Act?&nbsp;

Not everyone can take advantage of Section 44ADA - designed specifically for certain eligible professionals and small business structures. Let's break down who can benefit from this presumptive scheme.

If you're working in any of these fields, you're likely eligible:

For example, if you're a doctor running your clinic as an individual practitioner or in partnership with other doctors, you can opt for Section 44ADA. However, if you've structured your practice as an LLP or a private limited company, you won't be eligible for this scheme.

Remember, just because you're in one of these professions doesn't automatically mean you should opt for Section 44ADA. The decision should depend on your actual expenses and business circumstances. 

What are the limits under 44ADA of the Income Tax Act?&nbsp;

To use Section 44ADA, your professional income must stay within certain limits.&nbsp;

Here's what you need to know about these thresholds:&nbsp;

₹50 Lakhs If you're receiving payments through any means (cash, cheque, or online transfers), you can use Section 44ADA as long as your total professional income doesn't exceed ₹50 lakhs in a financial year.

&nbsp;₹75 Lakhs There's good news if you mostly receive digital payments. You can enjoy a higher limit of ₹75 lakhs if you meet this condition:

Scenario 1: A consultant earning ₹60 lakhs annually:

Scenario 2: A lawyer earning ₹55 lakhs annually:

💡Important: When we say "cash receipts," this includes not just physical cash but also bearer cheques and bank drafts that aren't account payee. To stay safe, always insist on account payee cheques or digital payments from your clients.

Taxable Income under 44ADA of Income Tax Act&nbsp;

Let's examine how your taxable income is calculated under Section 44ADA—it's simpler than you might think.

Under Section 44ADA, the tax department assumes half of your turnover is your profit. Here's how it works in practice:

Let's say you're a freelance architect who earned ₹40 lakhs this year:

📚Note: Once you calculate your income this way, you can't claim any additional expenses. The 50% calculation is final - even if your actual expenses were higher or lower.

Can you declare more than 50%?&nbsp;

Yes! The 50% is just the minimum. If your actual profit is higher, you should declare the higher amount. For example, if your real expenses were only ₹15 lakhs on a ₹40 lakh income, you should declare ₹25 lakhs as your taxable income.