India’s presumptive taxation scheme allows small businesses and professionals to declare income at a fixed rate, reducing compliance burdens. For FY 2024-25 (AY 2025-26), the rules remain largely unchanged, but taxpayers must understand eligibility, benefits, and key considerations.

Let’s break down how presumptive taxation works and who should opt for it.

What is Presumptive Taxation?

Under Sections 44AD, 44ADA, and 44AE of the Income Tax Act, eligible taxpayers can declare income at a prescribed rate instead of maintaining detailed books of accounts.

Key Benefits:

✔ No need for bookkeeping or audit (if turnover within limits)
✔ Lower compliance burden (simpler tax filing)
✔ Reduced tax liability (for some businesses)

1. Presumptive Taxation for Businesses (Section 44AD)

Applicable to:

• Small businesses (retail, wholesale, manufacturing, etc.)
• Turnover limit: ₹3 crore (if cash receipts ≤ 5% of total turnover)

Presumptive Income Rate:

• 8% of turnover (if digital payments ≥ 95%)
• 6% of turnover (if cash transactions exceed 5%)

Example:

• Turnover = ₹2 crore (95% digital payments)
• Presumptive income = 8% of ₹2 crore = ₹16 lakh
• Taxable income after deductions (if any) = ₹16 lakh

2. Presumptive Taxation for Professionals (Section 44ADA)

Applicable to:

• Doctors, lawyers, architects, consultants, freelancers, etc.
• Gross receipts limit: ₹75 lakh

Presumptive Income Rate:

• 50% of gross receipts (automatically considered as profit)

Example:

• Gross receipts = ₹60 lakh
• Presumptive income = 50% of ₹60 lakh = ₹30 lakh
• Taxable income after deductions (if any) = ₹30 lakh

3. Presumptive Taxation for Freight Operators (Section 44AE)

Applicable to:

• Transport businesses (owning/leasing ≤ 10 goods vehicles)

Presumptive Income Rate:

• ₹1,000 per ton per month (for heavy vehicles)
• ₹7,500 per vehicle per month (for other vehicles)

Example:

• 5 trucks (12-ton capacity each)
• Presumptive income = 5 × 12 × ₹1,000 × 12 months = ₹7.2 lakh

Who Should Opt for Presumptive Taxation?

✔ Small businesses with turnover < ₹3 crore
✔ Professionals earning < ₹75 lakh
✔ Freight operators with ≤ 10 vehicles
✔ Those wanting to avoid bookkeeping & audits

Conclusion

Presumptive taxation is a boon for small taxpayers, reducing compliance hassles. However:

• Calculate actual profits before opting in (if expenses are high, regular taxation may be better).
• Maintain some records (bank statements, invoices) for verification.