Presumptive taxation is a simplified scheme introduced under the Income Tax Act to ease the compliance burden for small businesses, professionals, and transport operators. Instead of maintaining detailed books and undergoing audits, eligible taxpayers can declare income at a fixed percentage of their turnover or gross receipts.
✅ Key Features of Presumptive Taxation Scheme
- No mandatory books of accounts
- No audit requirement (if turnover is within threshold)
- Income is presumed at standard rates
- Applicable under Sections 44AD, 44ADA, and 44AE
👥 Who Can Use Presumptive Taxation?
Eligible Categories:
| Category | Eligibility Criteria |
|---|---|
| Small Businesses (44AD) | Turnover ≤ ₹3 crore (for digital payments ≥ 95%) |
| Professionals (44ADA) | Gross receipts ≤ ₹75 lakh |
| Transport Operators (44AE) | Owns ≤ 10 goods vehicles used for transport |
Ineligible Entities:
- Companies and LLPs
- Businesses declaring heavy depreciation (> ₹25 lakh)
- Partnership firms with corporate partners
- Those who have opted out of presumptive scheme within 5 years
📊 Types of Presumptive Taxation Schemes
A. Section 44AD – For Small Businesses
| Parameter | Details |
|---|---|
| Applicable to | Traders, shopkeepers, small manufacturers |
| Presumed Profit | 8% (cash) or 6% (digital receipts) |
| Turnover Limit | ₹3 crore (with 95% digital receipts) |
| Audit Required? | No (unless turnover exceeds ₹3 crore) |
B. Section 44ADA – For Professionals
| Parameter | Details |
|---|---|
| Applicable to | Doctors, architects, CAs, lawyers, IT consultants |
| Presumed Profit | 50% of gross receipts |
| Turnover Limit | ₹75 lakh |
| Audit Required? | No (if opting under presumptive scheme) |
C. Section 44AE – For Transport Operators
| Parameter | Details |
|---|---|
| Applicable to | Truck/bus owners with ≤10 goods vehicles |
| Presumed Profit | ₹1,250 per month per vehicle |
| Example | 5 trucks × ₹1,250 × 12 = ₹75,000 annual income |
| Audit Required? | No |
🧮 How to Calculate Income Under Presumptive Taxation
For Businesses (Section 44AD)
Formula:
Presumed Income = 8% of cash turnover + 6% of digital turnover
Example:
Total Turnover = ₹50 lakh
Digital Receipts = ₹40 lakh
Cash Receipts = ₹10 lakh
Taxable Income = ₹3.2 lakh (8% of ₹40L) + ₹60K (6% of ₹10L) = ₹3.8 lakh
For Professionals (Section 44ADA)
Formula:
Presumed Income = 50% of Gross Receipts
Example:
Gross Fees = ₹20 lakh
Taxable Income = ₹10 lakh
For Transporters (Section 44AE)
Formula:
Presumed Income = ₹1,250 × No. of Vehicles × 12
Example:
Vehicles Owned = 6
Taxable Income = ₹1,250 × 6 × 12 = ₹90,000
✔ Advantages of Presumptive Taxation
- No accounting books required
- Exemption from tax audit
- Reduced compliance and paperwork
- Eligible for other deductions (like 80C, 80D)
- Timely tax filing made easy
✖ Disadvantages of Presumptive Taxation
- Cannot claim business-related actual expenses
- Cannot show loss under business/profession
- Higher tax liability if actual profit is lower than presumed
- Once opted, must continue for 5 years (for 44AD)
🧾 ITR Form for Presumptive Taxation
| Scheme | ITR Form |
|---|---|
| Section 44AD | ITR-4 (Sugam) |
| Section 44ADA | ITR-4 (Sugam) |
| Section 44AE | ITR-4 (Sugam) |
Note: If the turnover exceeds limits, or you opt out of the scheme, then file ITR-3 with audited financials.
📁 Documents Required for Filing Presumptive ITR
- Bank statements for the financial year
- Sales invoices and payment receipts
- GST returns (if GST registered)
- Form 26AS (to check TDS credit)
- Aadhaar, PAN, and mobile-linked bank account
📝 Step-by-Step Guide to File ITR Under Presumptive Taxation
Step 1: Compute Presumptive Income
- Use 6% / 8% of turnover (Section 44AD)
- Use 50% of gross receipts (Section 44ADA)
Step 2: Log in to Income Tax Portal
- Visit https://www.incometax.gov.in
- Select ITR-4 (Sugam)
Step 3: Fill Income Details
- Select the ‘Presumptive Taxation’ option
- Enter turnover and computed income
Step 4: Claim Deductions
- 80C: PPF, LIC, ELSS
- 80D: Health insurance premium
- 80G: Donations to approved institutions
Step 5: Compute & Pay Tax
- Advance tax not required (only final tax by March 31)
Step 6: E-Verify Return
- Use Aadhaar OTP or Net Banking/EVC
🚫 Common Mistakes to Avoid
- ❌ Mixing personal and business accounts
- ❌ Not maintaining any basic documentation
- ❌ Opting out before 5-year lock-in (44AD)
- ❌ Ignoring GST compliance (if applicable)
- ❌ Misreporting turnover or using wrong ITR form
A: No detailed books required, but basic records are advisable.
❓ FAQs on Presumptive Taxation
Q1. Can I opt-in and opt-out of presumptive scheme anytime?
A: No. For Section 44AD, once opted out, you cannot opt back in for 5 years.
Q2. Is advance tax required under presumptive taxation?
A: No. Tax can be paid in one installment before March 31.
Q3. Can salaried employees use this scheme for side businesses?
A: Yes, if the business income qualifies under Section 44AD/ADA.
Q4. Can deductions under Chapter VI-A be claimed?
A: Yes, deductions like 80C, 80D, 80G are allowed.
Q5. Do I have to maintain books under presumptive taxation?
A: No detailed books required, but basic records are advisable.