Presumptive Taxation

What it means

Presumptive taxation lets small businesses and professionals pay income tax on a fixed percentage of their turnover or receipts, instead of keeping detailed books and getting them audited. The income so declared is treated as final, and no separate deduction for expenses is claimed.

How it works

• Section 44AD (business): for resident individuals, HUFs and partnership firms (not LLPs) with turnover up to ₹2 crore, or ₹3 crore if cash receipts are within 5% of turnover. Profit is taken at 8% of turnover, or 6% of receipts through banking or digital modes.

• Section 44ADA (professions): for resident individuals and firms (not LLPs) in specified professions such as legal, medical, engineering, architecture, accountancy, technical consultancy and interior design, with gross receipts up to ₹50 lakh, or ₹75 lakh if cash receipts are within 5%. Profit is taken at 50% of receipts.

• Section 44AE (transporters): for those owning up to 10 goods vehicles, at a fixed amount per vehicle per month.

• You can declare a higher profit than the presumptive rate. Declaring lower generally requires books and a tax audit.

• Advance tax can be paid in one instalment by 15 March.

These section numbers are from the old Act; the same scheme continues under the Income-tax Act, 2025.

Example

Anil runs a hardware shop with turnover of ₹1,50,00,000: ₹1,20,00,000 received through UPI and bank, ₹30,00,000 in cash.

1. Cash is 20% of turnover, more than 5%, so the ₹2 crore limit applies. Turnover of ₹1.5 crore is within it.

2. Profit on digital receipts: 6% of ₹1,20,00,000 = ₹7,20,000.

3. Profit on cash receipts: 8% of ₹30,00,000 = ₹2,40,000.

4. Total presumptive income: ₹9,60,000. Under the new regime this is below ₹12 lakh, so tax is nil after the 87A rebate.

A doctor under 44ADA with receipts of ₹60,00,000 (cash under 5%) would declare 50%, that is ₹30,00,000.

Key points to remember

• If you opt out of 44AD after using it, you cannot return to it for the next five years.

• GST registration and GST returns still apply separately if you cross GST thresholds.

• File ITR-4 (Sugam) where eligible; it needs only basic financial particulars, not full books.

• Commission agents and LLPs cannot use section 44AD.