Presumptive Taxation Scheme is a relief for small taxpayers who don’t want to maintain complicated books of accounts. If you are a small business owner, professional, or someone who runs a goods vehicle, the Income Tax Act offers you a simpler way to pay tax under sections 44AD, 44ADA, and 44AE. Let’s understand it in simple terms.
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What is Presumptive Taxation?
Normally, every taxpayer has to maintain detailed books of accounts, calculate actual profit and then pay tax. But under the Presumptive Taxation Scheme, the income is presumed based on turnover or type of business, and tax is paid on that presumptive income. This is very useful for small traders, professionals, and transporters.
Section 44AD – For Small Businesses
Who can opt?
- Resident Individuals, Hindu Undivided Families (HUFs), and Partnership Firms (not LLPs)
- Businesses like retail shop, trading, manufacturing, etc.
- Turnover should be up to ₹3 crore
How is income calculated?
- If turnover is through digital means (UPI, bank, card) – 6% of turnover is presumed as income
- If turnover is in cash – 8% of turnover is presumed as income
No need to maintain books of accounts or get them audited.
Conditions:
- If you opt for 44AD, you should continue for 5 years. If you skip in between, you cannot opt again for 5 years.
Section 44ADA – For Professionals
Who can opt?
- Only Resident Individuals who are professionals like:
- Doctors
- Lawyers
- Architects
- Chartered Accountants
- Technical Consultants, etc.
- Gross receipts should be up to ₹75 lakhs
How is income calculated?
- 50% of total receipts is considered as income.
- Tax is paid on this amount. No need to calculate actual expenses.
You also don’t need to maintain detailed books or get audit done.
Section 44AE – For Transporters
Who can opt?
- Individuals, HUFs, Firms owning goods vehicles
- Should not own more than 10 vehicles during the year
How is income calculated?
- ₹1,000 per ton per month for heavy goods vehicles (more than 12,000 kg)
- ₹7,500 per month per vehicle for light goods vehicles (less than 12,000 kg)
Income is calculated vehicle-wise, not on actual profits or expenses.
Benefits of Presumptive Taxation
- No headache of maintaining books of accounts
- No need for CA audit
- Easy ITR filing (Use ITR-4)
- Saves time, money, and compliance burden
- Ideal for small businessmen, freelancers, and transport owners
When You Can’t Opt for Presumptive Taxation
- If your turnover exceeds ₹3 crore (for business) or ₹75 lakh (for professionals)
- If you run commission, brokerage or agency business
- If you are a company or LLP
- If you have more than 10 vehicles (for transporters)
Which ITR Form to Use?
If you are filing under presumptive taxation, use ITR-4 (Sugam). It’s a very simple form and doesn’t require balance sheet or P&L account.
Conclusion
Presumptive Taxation Scheme under 44AD, 44ADA and 44AE is a golden opportunity for small taxpayers to save time and avoid heavy compliance. If you are eligible, this scheme makes your tax filing easy, stress-free, and cost-effective.
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Frequently Asked Questions (FAQs)
1.What if I stop using 44AD before 5 years?
If you choose 44AD but stop using it before 5 years, you cannot opt for 44AD again for the next 5 years, and you will have to maintain books and get audited.
2.Can companies or LLPs use presumptive taxation?
No, companies and LLPs cannot opt for 44AD, 44ADA, or 44AE. These are only for individuals, HUFs, and partnership firms (non-LLP).
3.Can transporters use presumptive tax?
Yes, under Section 44AE, transporters owning up to 10 goods vehicles can declare fixed income per vehicle per month without keeping accounts.