The Income Tax Act, 1961 provides a simplified taxation scheme known as Presumptive Income Scheme under certain sections. These provisions allow eligible taxpayers, mainly small businesses and professionals, to calculate their taxable income based on a fixed percentage of their gross receipts or turnover. This method reduces the burden of maintaining detailed books of accounts and simplifies tax compliance.

Key Sections related to Presumptive Income in the Income Tax Act:

1. Section 44AD – Presumptive Taxation for Small Businesses

Applicability:

• Available to resident individuals, Hindu Undivided Families (HUFs), and partnership firms (other than LLPs) engaged in eligible businesses.
• Eligible businesses include any business except those involved in the business of plying, hiring, or leasing of goods carriages or professionals as specified under Section 44AA(1).
• Turnover/receipts limit: The gross receipts or turnover should not exceed ₹3 crore from the financial year 2023-24 onwards (previously ₹2 crore).

Presumptive Income:

• Income is presumed to be 8% of the turnover/gross receipts for businesses that do not receive digital payments.
• Income is presumed to be 6% of the turnover/gross receipts where receipts are through digital transactions (banking channels, digital payments, etc.).

Key Provisions:

• No need to maintain books of accounts under Section 44AA.
• No need for audit under Section 44AB if income is declared under Section 44AD.
• 5-year lock-in: If the taxpayer opts for this scheme, they must continue with the presumptive scheme for 5 years. If they opt out of the scheme in any year, they will be barred from re-entering the scheme for the next 5 years.
• Deduction for business expenses like depreciation, interest, etc., is deemed to be included in the presumptive income.

Ineligible Businesses/Entities:

• A person who has made claims for deductions under Section 10A, 10AA, 10B, or 10BA or Chapter VIA deductions is not eligible.
• LLPs and businesses outside the scope of eligible businesses cannot use Section 44AD.

2. Section 44ADA – Presumptive Taxation for Professionals

Applicability:

• Available to resident individuals and partnership firms (other than LLPs) engaged in professions specified under Section 44AA(1), such as:
  • Legal
  • Medical
  • Engineering
  • Architectural
  • Accountancy
  • Interior decoration
  • Technical consultancy, etc.

Turnover/receipts limit:

• The gross receipts from the profession should not exceed ₹75 lakh in a financial year.

Presumptive Income:

• Income is presumed to be 50% of the total gross receipts or turnover.

Key Provisions:

• No need to maintain books of accounts if income is declared under this section.
• No need for audit under Section 44AB.
• All expenses related to the profession are deemed to be included in the presumptive income.
• If actual income is higher than 50% of gross receipts, the higher amount should be declared.

3. Section 44AE – Presumptive Taxation for Transporters

Applicability:

• Available to any individual, HUF, firm, or company (including LLPs) engaged in the business of plying, hiring, or leasing goods carriages.
• Applies to taxpayers who do not own more than 10 goods vehicles at any time during the financial year.

Presumptive Income:

• Income is presumed as:
  • ₹1,000 per ton of gross vehicle weight per month (for heavy goods vehicles, i.e., more than 12 tons).
  • ₹7,500 per month or part of a month (for other vehicles, i.e., less than 12 tons) for each vehicle owned or leased.

Key Provisions:

• No need to maintain books of accounts if income is declared under Section 44AE.
• No need for audit under Section 44AB if the income is declared under this section.
• The taxpayer is allowed to declare higher income than the presumptive rates.
• The expenses like fuel, driver salary, maintenance, etc., are deemed to be included in the presumptive income.

4. Section 44BB – Presumptive Taxation for Non-Resident Indians in Oil Exploration

Applicability:

• Applicable to non-resident individuals or entities engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire for, oil and gas exploration.

Presumptive Income:

• Income is presumed to be 10% of the gross receipts from such activities.

Key Provisions:

• No need to maintain books of accounts for computing taxable income.
• The 10% presumptive income includes all expenses, and no further deductions are allowed.

5. Section 44BBA – Presumptive Taxation for Non-Resident Airlines

Applicability:

• Applicable to non-resident airlines engaged in the business of operating aircraft.

Presumptive Income:

• Income is presumed to be 5% of the gross receipts from the operations of the airline in India.

Key Provisions:

• No further deductions for expenses are allowed under the presumptive scheme.

6. Section 44BBB – Presumptive Taxation for Foreign Companies Engaged in Power Projects

Applicability:

• Applicable to foreign companies engaged in civil construction or other services related to turnkey power projects approved by the government.

Presumptive Income:

• Income is presumed to be 10% of the gross receipts from such projects.

Key Provisions:

• No need to maintain detailed books of accounts under this section.
• All expenses are deemed to be covered in the presumptive income.

Summary of Presumptive Tax Provisions:

Key Benefits of Presumptive Income Schemes:

1. Simplified Compliance: No need to maintain detailed books of accounts.
2. No Audit Requirement: Taxpayers opting for presumptive schemes are not required to undergo tax audits.
3. Low Tax Burden: Fixed percentage of gross receipts reduces tax liability for small businesses and professionals.
4. Inclusive of Expenses: All expenses (like depreciation, salary, rent, etc.) are presumed to be included in the fixed income rate.

These provisions are especially beneficial for small businesses, professionals, and transporters, reducing the compliance burden and making tax filing easier.