Running a small business or your professional services requires you to do a lot more than just run a business. You can call presumptive taxation a shot in the arm for helps your tight schedule, as it helps you save a lot of time and effort.
However, like all great things, there is some catch. Section 44D of the Indian Income Tax Act defines the rules of presumptive taxation.
Key Takeaways
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Presumptive taxation is a simplified method of tax assessment introduced to ease the compliance burden for small businesses, professionals, and freelancers. Instead of maintaining detailed account books and undergoing extensive audits, eligible taxpayers can declare their income at a prescribed rate based on turnover or receipts. This system is designed to encourage tax compliance while reducing administrative hassles.
Under the presumptive taxation scheme, the income declared is referred to as presumptive income as it is presumed to be a fixed percentage of gross receipts or turnover. Taxpayers opting for this scheme are not required to maintain regular books of accounts or undergo audits, making it an attractive option for small businesses and professionals.
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Presumptive taxation allows you to pay your tax based on presumptive income. Meaning, you don’t really need to estimate your income by deducting your expenses from revenue. You can simply take a percentage of your total revenue and pay tax on that.
Although, not having to maintain books of account could be one of the benefits of presumptive taxation. However, it’s not that straightforward, as you would still want to know your actual gain or loss in the activity.
This is also a limiting factor, as if you opt for presumptive taxation, you cannot claim expenses and deductions from your revenue.
So, the benefit is more like, you may not have to submit the bills and financial statements while filing your taxes. But, you still need to maintain the accounts as a good businessperson. We will see why later in this article.
The rules of presumptive taxation differ for different tax-paying entities. The two major classifications are businesses and individual professionals. Individual professionals have been further divided into two sections:
| Legal Entities | Individual Professionals |
| • Sole Proprietorship | • Engineering |
| • Limited Liability Partnership (LLP) | • Legal |
| • Private Company | • Architecture & related |
| • Public Company | • Accountant |
| • Accountant | • Medical |
| • Technical consultant | |
| • Interior designers |
Individuals involved in providing professional services other than the ones listed above will need to use the rules for non-specified professions.
You can only opt for presumptive taxation if your turnover doesn’t exceed the following limits:
Presumptive taxation rules apply to almost all the professions and businesses which meet the turnover criteria. However, few businesses are excluded from using the presumptive taxation mode of calculating tax liabilities:
In case of business tax payors rates of taxable income consideration depend on the type of receipt:
For example, if your business had total revenue of Rs. 1 crore in the previous year, and your cash receipts total up to Rs. 30 lakhs, your taxable income under presumptive tax rules will be Rs. 6.6 lakhs (2.4 + 4.2 lakhs).
If you are a professional opting for presumptive taxation, you can estimate your tax liability on 50% of your total revenue.
Here’s why you should maintain your accounting books religiously, even if you are opting for presumptive taxation.
Consider the following example:
Rule of Thumb: If your eligible expenses in your profession exceed 50% of your revenue, use the normal route. But, of course, to know if your eligible expenses exceed the limit, your books have to be in order.
Union Budget 2025 introduces Section 44BBD, a presumptive tax for non-residents providing services or tech for electronics manufacturing in India.
Source: Trilegal
Taxation rules mandate maintaining necessary accounting books for businesses and professionals which meet any of the following criteria for income and turnover.
The limits apply to the amounts in any of the three immediately preceding financial years:
| Business | Specified Professionals | Non-Specified Professionals | |
| Income | 1.2 Lakhs | 2.5 Lakhs | |
| Total Sales / Gross Revenue / Receipts | 12 Lakhs | 1.5 Lakhs | 25 Lakhs |
For example, if you are filing the return for Financial Year 2025-26, your turnover or gross receipts for the FY 2024-25, 2023-24, and 2022-23 would also count.
In case you are a professional, whose gross revenue meets the criteria above, you will need to maintain the following books of accounts under the Income Tax Laws. When you file your tax returns, you will need to submit these books for the correct assessment of your tax.
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Due dates for filing your returns would depend on the applicability of tax-audit on your business or profession. Your business or profession is liable to get the books audited for tax and file a tax audit report under the following circumstances:
Due dates for returns with and without tax-audit reports are as follows:
| Professionals | |
| Normal Tax Return | ITR 3 |
| If opting for Presumptive Taxation | ITR 4 |
| Tax Audit Report | Form 3CD |
Presumptive taxation scheme is a good initiative to reduce your burden of tax processing and filing. This rule gives you an option to reduce your tax liabilities even when your business expenses are low.
Presumptive taxation is designed to simplify tax compliance for small businesses and professionals. Instead of maintaining detailed books of accounts and undergoing audits, eligible taxpayers can declare income at a prescribed rate. But who exactly qualifies for this scheme?
The benefits of presumptive taxation are available to individuals and businesses meeting specific criteria set by the Income Tax Act. Generally, the following categories of taxpayers can opt for it:
Proprietorships, partnership firms (excluding LLPs), and Hindu Undivided Families (HUFs) engaged in any business (except those specified under Section 44AD) with an annual turnover of up to ₹3 crore can declare their presumptive income at 6% (for digital transactions) or 8% (for cash receipts).
Doctors, lawyers, consultants, and other specified professionals earning up to ₹75 lakh annually can opt for the presumptive taxation scheme under Section 44ADA. They need to declare at least 50% of their gross receipts as income.
Small transport operators owning up to ten goods vehicles can declare income under Section 44AE. The taxable income is determined on a per-vehicle, per-month basis.
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