Presumptive Tax Scheme Gets Tighter: What To Do, What To Avoid While Filing ITRs

With the latest changes in income tax return requirements, taxpayers under the presumptive taxation scheme are expected to be a little more transparent about their financial lives, especially when it comes to investments. The idea is straightforward: if your declared income is modest but your investments are growing rapidly, the numbers should add up. This doesn’t mean genuine taxpayers have anything to worry about, but it does signal that the tax department is paying closer attention than before.

Presumptive Taxation: Who Can Opt And Why It Works

The presumptive taxation scheme is a simplified tax framework designed for small taxpayers, allowing them to simply declare a fixed percentage of their gross turnover/receipts as taxable income, thereby eliminating the burden of maintaining detailed books of accounts, simplifying overall tax compliances and, thus, making tax filings significantly easier and faster.

The scheme is categorised into three primary segments, each with specific eligibility thresholds:

i. Small Businesses: Individual, HUFs or partnership firms (excluding LLPs) being resident in India can opt for this scheme in case their annual turnover/receipts do not exceed Rs 2 crore or Rs 3 crore where turnover is substantially through digital and banking modes.

“Income is usually taken at 8 per cent of turnover/receipts, while through digital or banking channels may qualify for a lower presumptive rate of 6 per cent. However, taxpayers are free to voluntarily declare a higher income than the prescribed rates. The most common examples of small business taxpayers opting for the said scheme include traders, retailers, shopkeepers, contractors, freelancers etc,” says Sanjoli Maheshwari, Executive Director, Nangia & Co LLP.

ii. Professionals: This category typically covers professionals such as doctors, lawyers, chartered accountants, architects, engineers, consultants etc. If annual gross receipts of such professionals do not exceed Rs 50 lakh or Rs 75 lakh where receipts are substantially through digital and banking modes, in such cases, 50 per cent of gross receipts is generally treated as taxable income. However, taxpayers are free to voluntarily declare a higher income than the prescribed rates. This is particularly beneficial for self-employed professionals.

iii. Transport Operators: A separate presumptive system is also available for taxpayers engaged in the business of plying, hiring or leasing goods vehicles. In such cases, income is not calculated as a percentage of turnover. Instead, it is determined on a fixed basis depending upon the type and number of goods vehicles owned during the year. This provision is especially useful for small truck owners and transport operators.

“The presumptive scheme offers a simpler route to tax compliance as it reduces the burden of maintaining detailed books of account and undertaking detailed tax calculations which can be both time-consuming and costly. Since income is computed on a presumptive basis, taxpayers are not required to undergo complex calculations of every business expenditure and evaluate its tax deductibility as per in the regular taxation framework, thereby making the tax filing process faster and more convenient,” says Maheshwari.

How To Avoid And Correct Mistakes

Taxpayers opting for presumptive taxation need to be mindful of a few key aspects while filing their ITRs. In addition to using the correct form (ITR-4 Sugam) and selecting the appropriate presumptive option, they should ensure consistency between declared income and investment patterns.

“It is also important to reconcile and cross-check all investments with bank statements, Form 26AS, and AIS—verifying amounts, Permanent Account Number (PAN) details, and dates -and to report all investments accurately,” says Deepashree Shetty, Partner-Global Mobility Services, Tax & Regulatory Services, BDO India.

Conclusion

According to tax experts, the additional investment disclosure under the presumptive tax scheme is essentially a transparency measure.