Presumptive Taxation 2025: What is It & Why It Is Important

Presumptive taxation is a simplified tax scheme designed to ease the compliance burden for small businesses and professionals by allowing them to declare income at a fixed percentage of turnover. Under the Presumptive Taxation Scheme (PTS), taxpayers are not required to maintain detailed books of accounts. The Income Tax Bill 2025 is expected to bring changes to this scheme, impacting eligibility criteria, turnover limits, and tax rates. The revised presumptive taxation rules aim to enhance tax compliance and revenue collection while reducing the administrative burden. Understanding these changes is crucial for businesses and professionals planning their tax strategy.

What is presumptive taxation scheme (PTS)?

The presumptive taxation scheme is an alternative tax method for small businesses and professionals to simplify compliance. Instead of maintaining extensive records, taxpayers declare income at a fixed rate based on turnover.

Eligibility criteria:

• Available for businesses with turnover up to Rs.3 crore under Section 44AD and professionals with gross receipts up to Rs.75 lakh under Section 44ADA.

Tax computation:

• Businesses declare 6% or 8% of total turnover as taxable income, depending on digital or cash transactions.
• Professionals declare 50% of total gross receipts as taxable income without deductions.

Income Tax Bill 2025

The Income Tax Bill 2025 is expected to introduce amendments to existing taxation frameworks, including changes to the presumptive taxation scheme. The government aims to enhance compliance by increasing turnover limits and modifying tax rates for small businesses and professionals. The bill may also introduce new reporting requirements to prevent tax evasion under the scheme. Additionally, it could redefine eligibility criteria, bringing more taxpayers under its ambit while offering concessions to those using digital transactions. The updated bill is intended to simplify tax compliance while ensuring a broader tax base, ultimately strengthening India’s revenue collection and economic growth.

Why is this important?

Presumptive taxation plays a crucial role in easing the tax burden for small businesses and professionals who struggle with complex tax filing processes. The upcoming changes in the Income Tax Bill 2025 are important for several reasons. Firstly, they aim to expand the tax net by bringing more businesses under the scheme. Secondly, they encourage digital transactions by offering lower tax rates for non-cash payments. Thirdly, they reduce the compliance burden by allowing businesses to pay tax based on presumptive income rather than maintaining detailed records. These changes are expected to enhance transparency and improve tax compliance.

Examples

Presumptive taxation applies to different types of businesses and professionals. The following examples illustrate its applicability:

• Small retailers
• A grocery shop with an annual turnover of Rs.2 crore declares 8% of turnover as taxable income.
• Freelancers and consultants
• A graphic designer earning Rs.50 lakh annually under Section 44ADA declares 50% of receipts as income.
• Transport operators
• A truck owner with multiple vehicles pays tax under Section 44AE based on a fixed per-vehicle income.
• Doctors and medical practitioners
• A private clinic with revenue below Rs.75 lakh can avail of the scheme and pay tax on 50% of receipts.
• Commission agents
• Agents earning commission income are excluded from presumptive taxation and must file regular returns.
• Wholesale traders
• A trader selling goods below the Rs.3 crore turnover limit can opt for the scheme and pay tax at 8%.

Who will be most affected by the new presumptive taxation rules in India?

The new presumptive taxation rules under the Income Tax Bill 2025 will impact various categories of taxpayers.

Small businesses and traders

• Increased turnover limits may allow more businesses to opt for presumptive taxation, reducing compliance burdens.

Freelancers and professionals

• Digital professionals, doctors, lawyers, and consultants may need to adjust their tax planning due to new gross receipt limits.

Businesses relying on cash transactions

• Firms dealing primarily in cash will be impacted as digital payments are incentivised with lower tax rates.

Conclusion

Presumptive taxation provides a simplified approach to tax compliance, benefiting small businesses and professionals. The proposed changes in the Income Tax Bill 2025 aim to expand eligibility and encourage digital transactions while ensuring fair tax contributions. Understanding the new rules is essential for affected taxpayers to optimise their tax liability and remain compliant. With evolving tax laws, proper planning and awareness will help businesses and professionals navigate these changes effectively.

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