What is presumptive taxation scheme? It allows tax computation at a prescribed rate on income or profit estimated by a business owner or professional. It is an indirect method to calculate tax to be paid based on an assumed income.

Who is eligible for it? Presumptive taxation scheme can be used by the following in a financial year:

  • A business with a total sales  of less than ₹2
  • Those engaged in certain professions with total revenue not more than ₹50 lakh
Tax under Presumptive Taxation Scheme
  • For professionals, only 50% of the total yearly income needs to be declared under section 44 ADA. Tax is paid on the net income after allowing for a deduction.
  • For business owners, taxation depends on the mode of payment as per section 44AD. For receipts received digitally, a flat tax rate of 6% is applied, while it is 8% for those in cash.
  • Both businesses and professionals can declare their income at rates higher than the ones specified above if they wish to.
How presumptive taxation scheme helps
  • Tax compliance is reduced: Under normal circumstances, a person running a small business or a professional is required to maintain a book of accounts. Moreover, a business with a turnover of more than ₹1 crore would also be subject to a tax audit. Small businesses may not have the resources to hire a full-time accountant for record maintenance as well as auditing while professionals might not want to spend their time and energy in book-keeping. Reduction in tax compliance is a benefit of presumptive taxation scheme since the need for accounting records as well as auditing is completely eliminated.

  • Simplified returns: Would you want to fill a complicated 30-page long ITR 3 form when filing your taxes? Lengthy paperwork is not only tedious but also requires a lot of effort. Easy filing of IT returns is a benefit of presumptive taxation scheme that is hard to ignore. Just fill in a simple one-page form such as ITR4 which requires less information at the time of tax filing. 

  • One time advance tax payment: Those not opting for PTS have to pay advance tax quarterly in June, September and December respectively without fail. The main benefit of presumptive taxation scheme is that you can pay 100% of advance tax by March 15 of the financial year if you choose this method to file your taxes. No need to pay quarterly.

  • Save Tax: While professionals can reduce their taxable income to half of their gross total income by utilizing presumptive taxation scheme, business owners too need to declare a nominal part of their yearly profit (either 6% or 8%). This helps those falling under both these categories to reduce their tax outgo which could have been higher otherwise.