What Is Presumptive Taxation?

Ordinary tax computation starts from actual profit, which needs invoices, expense records and often an accountant. A presumptive scheme skips that step. The law states that profit is a set percentage of gross receipts, and you pay tax on that amount. You may declare a higher profit if your real profit is higher. The trade-off is that you cannot claim separate expenses against the presumed income. The Income Tax Department confirms in its new Act FAQ that the old sections 44AD, 44ADA and 44AE are now consolidated in section 58. For professional services the rate is 50%, covered on our Section 44ADA page.

For example, a consultant in Jaipur bills Rs 16 lakh a year to overseas clients, with real costs of about Rs 3 lakh. Under the professional scheme, Rs 8 lakh is taken as profit, while real profit would be Rs 13 lakh. Because real profit is higher, the consultant compares both before opting in. The numbers are hypothetical.

• Income tax: The schemes reduce record keeping and, where the presumed profit is declared, avoid a tax audit under section 63(2) of the 2025 Act.
• Advance tax: The Tax Payments FAQ says the whole advance tax for these cases is payable in one instalment by 15 March.
• GST: The schemes do not change GST. Export of services still needs the conditions of the IGST Act and, usually, an LUT.
• Bank compliance: Foreign receipts must be realised through an AD bank under the FEMA export regulations. The bank records support your reported gross receipts.

Presumptive taxation works by fixing the profit rate in law. You add up eligible receipts, apply the stated percentage and report the result as income.

1. Identify the scheme that matches your activity, professional or business.
2. Check eligibility conditions and the gross receipts limit for your tax year.
3. Compute gross receipts, including foreign receipts converted to rupees.
4. Apply the stated percentage, or declare a higher profit if it is higher.
5. Pay advance tax by 15 March and file the return form that allows presumptive income.

You compare tax under the scheme with tax on actual profit, and check eligibility. The figures below are hypothetical.

1. Add up gross receipts. Say Rs 18,00,000 for a professional.
2. Compute presumed profit at 50%, which is Rs 9,00,000.
3. Compute actual profit. Say real expenses are Rs 4,00,000, so actual profit is Rs 14,00,000.
4. Compare. Because actual profit is higher than the presumed figure, you may declare the actual figure but you cannot claim the expense difference.
5. Check the choice with a tax adviser, because opting out of a scheme can bring books and audit requirements.

• Zero tax: Income is still taxable. The scheme only changes how profit is computed.
• Foreign fees: Foreign receipts are not excluded from gross receipts.
• Old sections: Sections 44AD, 44ADA and 44AE apply to FY 2025-26 income. Later years use section 58.
• Expenses: Separate expenses cannot be deducted against presumed income.

• Section 44ADA: The presumptive scheme for professionals.
• Section 44AD vs 44ADA: Comparison of the business and professional schemes.
• ITR form for freelancers: Which return form fits a freelancer.
• Advance tax for freelancers: When advance tax is due.
• Withholding tax: Tax deducted at source on a payment.

Every rule and definition on this page is linked to its official source, checked on the dates below.

1. The Income-tax Act, 2025 (Gazette of India, 21 August 2025), Sections 58, 63(2), 408(2) (checked 9 Oct 2026)
2. Income Tax Department: Objective and scope of the New Act, FAQ 25 (checked 9 Oct 2026)
3. Income Tax Department: Tax payments FAQs, Single instalment by 15 March (checked 9 Oct 2026)
4. FEMA (Export and Import of Goods and Services) Regulations, 2026, Regulation 5 (checked 9 Oct 2026)