The Government of India introduced the Presumptive Taxation Scheme (PTS) to make tax compliance easier for small businesses and professionals. Instead of maintaining detailed books of accounts and going through tedious auditing requirements, eligible taxpayers can declare income at a presumptive rate. This scheme is especially useful for small entrepreneurs who want to focus more on business growth rather than complex taxation paperwork. Let’s understand how this scheme works, who can apply, and its key benefits.
What is Presumptive Taxation Scheme?
Under the presumptive taxation system, the Income Tax Department assumes (presumes) your income based on a fixed percentage of your turnover or receipts. You do not need to show actual expenses or maintain detailed financial records.
The scheme is covered under three sections of the Income Tax Act:
Section 44AD (for businesses):
- Resident Individual, HUF, or Partnership Firm
- Annual turnover up to ₹3 crores (digital transactions ≥95%)
- Applicable mainly to traders, shop owners, small manufacturers, etc.
- Not eligible for commission, brokerage, or agency business
Section 44ADA (for professionals):
- Gross receipts up to ₹75 lakhs
- Applicable to professionals like:
- Doctors, Engineers, Chartered Accountants
- Architects, Legal Practitioners
- IT consultants, Designers, etc.
Section 44AE (for transporters):
- Owners of up to 10 goods vehicles
- Income based on official fixed rate per vehicle/month
How Income is Calculated?
Under Section 44AD:
- 8% of turnover (cash sales)
- 6% of turnover (digital payments)
Example: Turnover ₹50,00,000
Presumptive Income = ₹3,00,000 (6%)
Tax is calculated on this income only.
Under Section 44ADA:
50% of total receipts considered as income
Example: Receipts ₹20,00,000
Income = ₹10,00,000
You do not need to show expense bills or audit if the scheme is followed correctly.
Benefits of Presumptive Taxation Scheme
- No need to maintain detailed books of accounts
- No audit requirement if rules are followed
- Reduced compliance cost and stress-free tax filing
- Encourages cashless transactions
- Easy and simple way to file Income Tax Return
- Best for small businesses and independent professionals
Important Points to Remember
- If you opt out after choosing the scheme under 44AD, you cannot opt in again for 5 years
- Advance tax must be paid by 15th March every year
- Proper disclosure in ITR-4 form is mandatory
- Income lower than presumptive income can be shown, but books of accounts + audit will be required