The Income Tax Bill 2025 introduces a crucial clarification on the Presumptive Taxation Scheme (PTS) under Sections 44AD and 44ADA of the Income Tax Act, aiming to resolve long-standing ambiguities and promote fair, transparent tax compliance for small businesses and professionals.
Income Tax Bill 2025: Clearer Rules for Presumptive Taxation
The Income Tax Bill 2025 has introduced a long-awaited clarification regarding the Presumptive Taxation Scheme (PTS) under Sections 44AD and 44ADA of the Income Tax Act. This update eliminates ambiguity around income reporting and ensures a more transparent and equitable tax compliance process for small businesses and professionals
Key Update: Actual Profit vs. Prescribed Rate
Previously, there was widespread uncertainty about whether taxpayers under the PTS had to declare only the deemed profit percentage (6%, 8%, or 50%) or disclose actual profits if higher.
The new rule mandates:
Taxpayers must report the higher of:
The prescribed rate under PTS (6%, 8%, or 50%), or
The actual profit earned during the financial year.
What Is the Presumptive Taxation Scheme (PTS)?
PTS simplifies tax compliance by allowing eligible taxpayers to declare income based on a fixed percentage of turnover/gross receipts instead of maintaining detailed books of accounts.
Section 44AD (For Small Businesses)
Applicable to eligible businesses with turnover up to ₹2 crore.
Presumptive income:
8% of turnover from cash receipts
6% of turnover from digital receipts
Section 44ADA (For Professionals)
Applies to professionals like doctors, lawyers, and architects.
Gross receipts threshold increased from ₹50 lakh to ₹75 lakh under the new bill.
Presumptive income: 50% of gross receipts
Why This Clarification Matters
Prevents Profit Underreporting
Earlier, high-margin taxpayers could understate income by declaring only the presumptive rate. Now, if actual profit exceeds the deemed rate, it must be reported.
Reduces Litigation
This removes ambiguity that has led to numerous tax disputes, offering clear guidelines to both taxpayers and tax authorities.
Promotes Honest Compliance
By aligning declared income more closely with actual earnings, the rule supports transparency and discourages misuse of the scheme.
Balances Simplicity and Fairness
The PTS continues to offer compliance relief to small taxpayers but ensures that high earners contribute fairly
Who Will Be Most Affected?
Businesses with high actual profit margins: Must now declare higher actual profits, not just 6% or 8%.
High-earning professionals under 44ADA: Those earning more than 50% profit must report the actual figure.
Taxpayers exploiting loopholes: Must reassess returns to avoid underreporting
Example Scenarios
1. Business Turnover ₹1.5 Crore
Digital receipts: ₹1 crore | Cash receipts: ₹50 lakh
Presumptive Income:
(6% of ₹1 crore) + (8% of ₹50 lakh) = ₹6 lakh + ₹4 lakh = ₹10 lakhActual Profit: ₹15 lakh
Taxable Income (as per new rule): ₹15 lakh
2. Professional Gross Receipts ₹60 Lakh (Section 44ADA)
Presumptive Profit (50%): ₹30 lakh
Actual Profit: ₹40 lakh
Taxable Income (as per new rule): ₹40 lakh
Key Takeaways for Taxpayers
Expanded Eligibility: Increased turnover limits under the presumptive taxation scheme allow more small businesses and professionals to take advantage of simplified tax compliance.
Clarity in Income Reporting: Taxpayers are now required to declare actual profits if they exceed the prescribed presumptive rates, promoting transparency.
Balanced and Fair Compliance: The updated rules prevent misuse of the scheme while retaining its simplicity for genuine small taxpayers.
Reduced Litigation: By eliminating ambiguity around reporting obligations, the new provisions aim to minimize tax disputes.
Incentive for Digital Transactions: Lower tax rates on digital receipts continue to encourage a shift towards digital payments
About the Author
Priya
Priya is an experienced writer specializing in simplifying complex legal and business concepts. Her insightful articles equip entrepreneurs with practical guidance to confidently navigate business laws, helping them launch and manage their ventures successfully
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