Can You Really Earn ₹24 Lakhs Tax-Free? The Truth About Professional Income!

A claim circulating suggests that professionals can earn up to ₹24 lakhs annually without paying any income tax starting from FY 2024-25. While this sounds enticing, it’s crucial to understand the nuances and assumptions behind this statement. Let’s break down the details and clarify the actual situation.

The Claim: ₹24 Lakhs Tax-Free?

The claim hinges on the interplay between Section 44ADA of the Income Tax Act, the presumptive taxation scheme, and the new tax regime. Here’s how the argument is constructed:

1. Section 44ADA: This section allows eligible professionals to declare 50% of their gross receipts as their income. This simplifies tax calculations by avoiding the need to maintain detailed books of accounts.
2. ₹24 Lakhs Gross Receipts: If a professional earns ₹24 lakhs in gross receipts, under Section 44ADA, their taxable income is presumed to be 50% of this amount, i.e., ₹12 lakhs.
3. New Tax Regime: The new tax regime offers lower tax rates, and with a taxable income of ₹12 lakhs, it’s argued that there would be no tax liability.

The Reality: Assumptions and Caveats

While the calculation is technically correct under these specific assumptions, it’s essential to recognize the limitations:

• Eligibility for Section 44ADA: Section 44ADA is applicable to specific professionals (chartered accountants, lawyers, doctors, architects, etc.) and has a gross receipts limit (currently ₹50 lakhs, but this may change). Not all professionals qualify.
• No Other Income: The claim explicitly assumes that the professional has no other source of income. If they have income from other sources (e.g., investments, rental income), this will be added to their professional income, and their total taxable income could exceed the threshold for zero tax liability.
• Deductions and Exemptions: The ₹12 lakh figure is before considering any deductions or exemptions the professional might be eligible for. If they claim deductions, their taxable income could be further reduced, potentially leading to a lower tax liability or even zero tax.
• New vs. Old Regime: The claim assumes the professional opts for the new tax regime. If they choose the old tax regime, the tax calculation will be different, and they might have a tax liability even with ₹12 lakhs of income.
• Changes in Tax Laws: Tax laws are subject to change. The information presented is based on the current understanding of the law, but it’s crucial to stay updated on any revisions or amendments.

A More Realistic Scenario:

Let’s consider a more realistic example:

A doctor earns ₹24 lakhs in gross receipts. They are eligible for Section 44ADA, so their presumed income is ₹12 lakhs. However, they also have ₹2 lakhs in income from investments. Their total taxable income becomes ₹14 lakhs. Even under the new regime, there will be some tax liability.

Conclusion:

The claim of “zero tax on ₹24 lakhs” is a simplification. While it’s possible to have no tax liability with ₹24 lakhs of professional income, this depends heavily on meeting the specific criteria of Section 44ADA, having no other income sources, choosing the new tax regime, and considering available deductions. It’s crucial to consult with a qualified tax advisor to understand the specific tax implications for your individual situation. Don’t rely solely on generalized claims; always seek professional guidance for accurate tax planning.