Presumptive Taxation for Business & Professionals – FY 2025-26 (AY 2026-27)

Thu Mar 20, 2025

What is Presumptive Taxation?

Presumptive taxation simplifies tax compliance by allowing small businesses and professionals to declare a fixed percentage of their turnover as taxable income, eliminating the need for detailed bookkeeping.

Key Sections of Presumptive Taxation

Category	Section	Turnover Limit	Presumptive Income
Businesses (Retail, Trading, Small Enterprises)	44AD	₹3 crore (if digital payments >95%)	6% (digital) / 8% (cash)
Professionals (Doctors, Lawyers, IT Consultants, Freelancers)	44ADA	₹75 lakh	50% of gross receipts
Transporters (Goods Carriage Business)	44AE	10 vehicles	₹1,000 per ton or ₹7,500 per vehicle per month

Who Should Opt for Presumptive Taxation?

• Small businesses & traders who want easy tax filing.
• Freelancers & professionals with low expenses.
• Transporters with a small fleet of vehicles.

Who Should Avoid It?

• Businesses with high operational expenses.
• Companies & LLPs (not eligible for 44AD & 44ADA).
• Taxpayers requiring detailed expense claims.

Presumptive Taxation for Business & Professionals – FY 2025-26 (AY 2026-27) Presumptive taxation is a simplified tax scheme introduced by the Income Tax Act to reduce the compliance burden on small businesses and professionals. Under this scheme, taxpayers can declare a fixed percentage of their total turnover or receipts as taxable income, without maintaining detailed books of accounts. For FY 2025-26 (AY 2026-27), presumptive taxation is covered under two sections:

• Section 44AD – For businesses
• Section 44ADA – For professionals
• Section 44AE – For transporters

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🔹 1️⃣ Presumptive Taxation for Businesses – Section 44AD ✅ Applicable to: Small businesses, traders, shopkeepers, and manufacturers
✅ Eligible Assessee: Individual, HUF, or Partnership Firm (Companies & LLPs not eligible)
✅ Turnover Limit: Up to ₹3 crore (if transactions are digital; ₹2 crore if cash transactions exceed 5%)
✅ Presumptive Income:

• 6% of digital turnover (if sales through bank transfers, UPI, cards, etc.)
• 8% of cash turnover

📌 Example:

• A small shop owner has a total turnover of ₹1.5 crore.
• 80% transactions are digital, and 20% are cash-based.
• Presumptive taxable income calculation:
  • Digital turnover (₹1.2 crore) → 6% of ₹1.2 crore = ₹7.2 lakh
  • Cash turnover (₹30 lakh) → 8% of ₹30 lakh = ₹2.4 lakh
  • Total taxable income = ₹7.2 lakh + ₹2.4 lakh = ₹9.6 lakh
• The shop owner will pay tax only on ₹9.6 lakh, even if actual expenses are lower or higher.

✅ Key Benefits:
✔ No need to maintain detailed books of accounts.
✔ No need for tax audit if turnover is within limits.
✔ Advance tax to be paid in one installment (March 15). ✅ Who Should Opt?
✔ Small traders, retailers, wholesalers, general store owners, and freelancers with low expenses.
✔ Businesses that accept most payments digitally to reduce taxable income to 6% instead of 8%. ✅ Who Should Avoid?
❌ Businesses with high expenses (e.g., manufacturers, contractors) as actual profit may be lower than the assumed 6-8%.
❌ Businesses crossing the turnover limit of ₹3 crore (or ₹2 crore in cash transactions).

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🔹 2️⃣ Presumptive Taxation for Professionals – Section 44ADA ✅ Applicable to: Specified professionals
✅ Eligible Assessee: Individuals & Partnership Firms (LLPs & Companies not eligible)
✅ Turnover Limit: Up to ₹75 lakh
✅ Presumptive Income: 50% of gross receipts 📌 Example:

• A lawyer earns ₹60 lakh in a financial year.
• Under Section 44ADA, 50% of ₹60 lakh (₹30 lakh) is considered taxable income.
• The lawyer pays tax on ₹30 lakh, without the need to maintain books of accounts.

✅ Professions Covered:
✔ Legal professionals (Lawyers, Advocates)
✔ Medical professionals (Doctors, Dentists)
✔ Technical consultants (Engineers, Architects)
✔ Chartered Accountants, Cost Accountants, Company Secretaries
✔ IT professionals, Software Developers, Freelancers ✅ Key Benefits:
✔ No need to maintain books of accounts.
✔ No need for tax audit if turnover is within limits.
✔ Advance tax to be paid in one installment (March 15). ✅ Who Should Opt?
✔ Professionals with low business expenses (since 50% is presumed as income).
✔ Freelancers and consultants who want simplified tax filing. ✅ Who Should Avoid?
❌ Professionals with high actual expenses exceeding 50% of turnover.
❌ Those who need detailed expense claims for tax savings.

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🔹 3️⃣ Presumptive Taxation for Transporters – Section 44AE ✅ Applicable to: Persons engaged in the business of plying, hiring, or leasing goods carriages
✅ Eligible Assessee: Individual, HUF, Firm, or Company
✅ Vehicle Limit: Up to 10 vehicles (more than 10 vehicles make the taxpayer ineligible)
✅ Presumptive Income:

• ₹1,000 per ton of vehicle’s capacity per month (for heavy vehicles)
• ₹7,500 per vehicle per month (for light commercial vehicles)

📌 Example:

• A transporter owns 5 heavy vehicles with a capacity of 20 tons each.
• Monthly presumptive income per vehicle: 20 tons × ₹1,000 = ₹20,000.
• Annual presumptive income for all vehicles: 5 × ₹20,000 × 12 = ₹12,00,000.
• Tax will be calculated on ₹12 lakh, regardless of actual income or expenses.

✅ Key Benefits:
✔ No need to maintain detailed books of accounts.
✔ Fixed income assumption helps in easy tax calculation. ✅ Who Should Opt?
✔ Small transporters with low maintenance costs.
✔ Those looking for simple tax compliance. ✅ Who Should Avoid?
❌ Transporters with high vehicle maintenance expenses exceeding the presumed profit.

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🔹 Comparison Table – Presumptive Taxation for Business, Professionals & Transporters

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🔹 Common FAQs on Presumptive Taxation 1. Can I claim additional deductions under Sections 80C, 80D, etc., under presumptive taxation? ✅ Yes, deductions like 80C (LIC, PPF, ELSS), 80D (Health Insurance), and 80E (Education Loan Interest) can be claimed after computing presumptive income. 2. Can I switch between presumptive taxation and regular taxation? ✅ For Section 44AD (businesses), if opted out once, the taxpayer cannot re-enter the scheme for the next 5 years.
✅ For Section 44ADA (professionals) and 44AE (transporters), taxpayers can switch year-on-year. 3. Do I need to pay advance tax under presumptive taxation? ✅ Yes, but only one installment (100% by March 15) instead of quarterly payments. 4. Can a company or LLP opt for presumptive taxation? ❌ No, only individuals, HUFs, and partnership firms can opt for Sections 44AD & 44ADA.

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🔹 Conclusion: Who Should Choose Presumptive Taxation? ✔ Best for small businesses, professionals, and transporters who want easy tax filing with minimal compliance.
✔ Not ideal for businesses & professionals with high actual expenses exceeding presumptive income assumptions.
✔ Ideal for freelancers and small traders who prefer lower tax audit compliance. 🚀 Thinking of opting for Presumptive Taxation? Drop your queries in the comments!