Introduction

The Income-tax Act, 1961 provides a simplified method of taxation known as the Presumptive Taxation Scheme. It is designed to reduce the compliance burden on small businesses and specified professionals. Instead of maintaining detailed books of account and computing actual profits, eligible taxpayers can declare income at a prescribed percentage of turnover or gross receipts.

• Section 44AD – Presumptive Taxation for Eligible Businesses
• Section 44ADA – Presumptive Taxation for Specified Professionals
• Section 44AE – Presumptive Taxation for Goods Carriage Operators
• Section 44AA – Maintenance of Books of Account
• Section 44AB – Tax Audit

What is Presumptive Taxation?

Under the normal provisions, income is computed after maintaining books of account and claiming actual expenses. Under the presumptive scheme, income is deemed at a prescribed percentage of turnover or gross receipts, reducing compliance requirements.

Section 44AD – Presumptive Taxation for Eligible Businesses

As per Section 44AD(1), the scheme is available to Resident Individuals, Resident HUFs and Resident Partnership Firms (excluding LLPs).

• Turnover limit: ₹2 crore (₹3 crore where cash receipts do not exceed 5%).
• Income deemed at 8% of cash turnover and 6% of eligible digital turnover.
• Deductions under Sections 30 to 38 are deemed to have been allowed.
• Books under Section 44AA and tax audit under Section 44AB are generally not required.

Section 44AD(4) & 44AD(5)

If an assessee opts out within the prescribed lock-in period, the benefit of Section 44AD cannot be claimed for the subsequent five assessment years. Where applicable, books of account and tax audit requirements arise under Sections 44AA and 44AB.

Section 44ADA – Presumptive Taxation for Specified Professionals

• Applicable to Resident Individuals and Resident Partnership Firms (excluding LLPs).
• Gross receipts limit: ₹50 lakh or ₹75 lakh where cash receipts do not exceed 5%.
• Income deemed at 50% of gross receipts.

Section 44AE – Presumptive Taxation for Goods Carriage Business

Applies to taxpayers engaged in the business of plying, hiring or leasing goods carriages. Income is computed on the prescribed per-vehicle basis.

Position under the Income-tax Bill, 2025

The proposed Income-tax Bill, 2025 does not introduce any significant policy changes to the presumptive taxation framework. The changes are primarily structural.

Key Takeaways

• Simplified compliance for eligible taxpayers.
• Enhanced limits: ₹3 crore under Section 44AD and ₹75 lakh under Section 44ADA subject to digital receipt conditions.
• Depreciation and other deductions under Sections 30 to 38 are deemed allowed.
• Evaluate eligibility before opting for the scheme.