What is presumptive income in income tax

Presumptive income is a method used in income tax assessment where the income of certain eligible taxpayers is calculated based on presumptions and assumptions made by the tax authorities, rather than requiring detailed accounting records and actual income computations. This method is primarily aimed at simplifying the tax compliance process for small taxpayers and reducing administrative burden both for taxpayers and tax authorities.

In the context of income tax, presumptive income schemes are often applicable to certain categories of taxpayers such as small businesses, professionals, and certain other specified individuals. Here are a few common types of presumptive income schemes:

  1. Section 44AD (Presumptive Taxation for Businesses): Under this section, businesses with a turnover of up to a certain threshold (currently ₹2 crores in India) can opt for presumptive taxation. The income is presumed to be 8% of the total turnover or gross receipts of the business. This means that the taxpayer is deemed to have earned at least 8% of the total turnover as taxable income, regardless of the actual profit or loss.
  2. Section 44ADA (Presumptive Taxation for Professionals): This section is similar to Section 44AD but applies to professionals such as doctors, lawyers, architects, etc. Professionals with gross receipts up to a certain threshold (currently ₹50 lakhs in India) can opt for presumptive taxation. Under this scheme, 50% of the gross receipts are deemed to be the taxable income.
  3. Section 44AE (Presumptive Taxation for Transporters): This section applies to taxpayers engaged in the business of plying, hiring, or leasing goods carriages. It prescribes a presumptive income based on the number of vehicles owned or operated by the taxpayer.
  4. Section 44BB and Section 44BBB (Presumptive Taxation for Non-Residents): These sections apply to non-resident taxpayers engaged in certain activities like providing services or exploration activities in the energy sector. The income is determined based on a percentage of gross receipts or turnover.

These presumptive income schemes simplify tax compliance for eligible taxpayers by eliminating the need for maintaining detailed books of accounts and undergoing complex tax calculations. However, taxpayers opting for presumptive taxation cannot claim deductions for expenses related to their business or profession, as the presumptive income is deemed to include all such expenses. If you are also looking for ITR services in Gurgaon, you can contact us at ebex consulting.

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