Presumptive Taxation 2025: Key Clarifications for Businesses & Professionals 

The new Income Tax Bill 2025 has introduced a much-needed clarification regarding the Presumptive Taxation Scheme (PTS) under Section 44AD and Section 44ADA of the Income Tax Act. This move aims to eliminate long-standing confusion and ensure a fair and transparent tax compliance process for small businesses and professionals.

Income Tax Bill 2025: Clarity on Presumptive Taxation

A long-standing confusion regarding Presumptive Taxation (Section 44AD & 44ADA) has finally been resolved in the New Income Tax Bill 2025! Earlier, there was uncertainty about whether taxpayers had to declare actual profit or the prescribed 6%/8% profit under the presumptive taxation scheme. 

Under the new provisions, taxpayers must declare 6% or 8% of turnover (as applicable) OR actual profit, whichever is higher.  

Presumptive Taxation Scheme (PTS)

The Presumptive Taxation Scheme was introduced to simplify tax compliance for small businesses and professionals by allowing them to declare a prescribed percentage of their turnover or gross receipts as profit instead of maintaining detailed books of accounts.

• Section 44AD applies to eligible businesses with a turnover of up to ₹2 crore (earlier). The deemed profit rate is 8% for cash receipts and 6% for digital receipts.
• Section 44ADA applies to professionals such as doctors, lawyers, and architects with gross receipts up to ₹50 lakh (increased to ₹75 lakh under the new bill). They are required to declare 50% of their gross receipts as income.

What’s the clarification on Presumptive Taxation?

As mentioned, One of the biggest confusions regarding PTS was whether a taxpayer could report only the presumptive rate (6%, 8%, or 50%) or if they had to declare actual profits if they were higher.

The Income Tax Bill 2025 clarifies that taxpayers must declare the higher of:

• The prescribed percentage under presumptive taxation (6%, 8%, or 50%), or
• The actual profit earned in the financial year.

Why is this important? 

Prevention of Profit Suppression

Previously, some businesses and professionals with high actual profits could take undue advantage of presumptive taxation schemes by declaring only the deemed percentage, even if their actual profits were significantly higher. With the new rule, they must report actual profits if they exceed the deemed percentage.

Reduced Tax Disputes and Litigation

Many tax disputes have arisen in the past due to differing interpretations of whether actual profits need to be disclosed. With this clarification, both taxpayers and tax authorities have clear guidance, reducing unnecessary legal battles.

Encouragement for Honest Compliance

By ensuring that businesses and professionals declare the correct income, the government promotes tax transparency and discourages manipulative tax practices.

Simplification While Maintaining Fairness

The presumptive scheme still offers ease of compliance by eliminating detailed bookkeeping for small taxpayers. However, it ensures that those earning more than the deemed percentage contribute their fair share.

Who Will Be Most Affected by the New Presumptive Taxation Rules?

• Businesses with high actual profit margins: They can no longer simply declare 8% or 6% if their actual profit is higher.
• High-earning professionals under Section 44ADA: Those earning more than 50% profit margins will now have to declare the actual profit.
• Taxpayers who relied on loopholes: Those who previously underreported actual profits under the presumptive scheme will need to reassess their tax filings.

Example Scenarios

1.Business Turnover ₹1.5 Crore (Digital receipts ₹1 crore, Cash receipts ₹50 lakh)

• Presumptive Taxation: (6% of ₹1 crore) + (8% of ₹50 lakh) = ₹6 lakh + ₹4 lakh = ₹10 lakh
• Actual Profit: ₹15 lakh
• Taxable Income (New Rule): ₹15 lakh (since it is higher than ₹10 lakh)

2.Professional Income ₹60 Lakh (Section 44ADA)

• Presumptive Profit (50%): ₹30 lakh
• Actual Profit: ₹40 lakh
• Taxable Income (New Rule): ₹40 lakh (since it is higher than ₹30 lakh)

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Key Takeaways for Taxpayers

• Higher turnover limits under the presumptive taxation scheme allow more businesses and professionals to benefit.
• Clarity on profit declaration ensures that taxpayers report actual earnings if they exceed the presumptive rates.
• A fair taxation approach prevents misuse of the scheme while maintaining ease of compliance.
• Reduced tax disputes by removing ambiguity on reporting obligations.
• Encouragement for digital transactions by offering lower tax rates on digital receipts.

Conclusion

The Income Tax Bill 2025 has provided much-needed clarity on presumptive taxation by ensuring that businesses and professionals declare income fairly. While this does not eliminate the benefits of the scheme, it ensures that those earning higher profits contribute their fair share. The clarification will improve tax compliance, reduce disputes, and promote transparency in India's taxation system.

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