Presumptive taxation for small businesses and professionals
Presumptive taxation lets small businesses declare 8% (6% digital) of turnover as profit, and professionals 50% of receipts, without full books.
Short answer
Presumptive taxation is a simplified scheme under which eligible small businesses and professionals declare income at a fixed percentage of turnover or receipts, without maintaining detailed books or getting a tax audit. Under the Income-tax Act, 2025 the business scheme is in section 58, which carries over the rules of former sections 44AD, 44ADA and 44AE.
- Provision
- Section 58, Income-tax Act 2025
- Business
- 8% of turnover (6% for digital receipts), up to ₹2 crore or ₹3 crore
- Professionals
- 50% of receipts, up to ₹50 lakh or ₹75 lakh
- Not available to
- Companies and LLPs
How the scheme works
An eligible resident individual, Hindu undivided family or partnership firm, other than an LLP, with business turnover up to ₹2 crore can declare 8% of turnover as income, or 6% of turnover received through banking or digital channels. The limit rises to ₹3 crore if cash receipts do not exceed 5% of turnover. Eligible professionals, such as doctors, lawyers, architects and consultants, can declare 50% of gross receipts up to ₹50 lakh, or ₹75 lakh with the same 5% cash condition. Owners of small transport fleets have a separate per-vehicle presumptive rate.
Conditions and lock-in
Taxpayers can declare higher income than the presumptive rate, but declaring lower income needs books and, above the exemption limit, a tax audit. A business that opts out after using the scheme generally cannot return to it for the following five years. Advance tax under the scheme can be paid in one instalment by 15 March. These thresholds carried over from the 1961 Act; check them for the year concerned.
Why it matters for founders
Freelancers, consultants and proprietors testing an idea often use the scheme to reduce compliance. It is not available to private limited companies or LLPs, so once you incorporate, normal computation applies. Compare actual margins with the presumptive rate before choosing, because a low-margin business may pay more tax under the scheme.
Related services
Sources
- Taxscan: Section 58 vs Section 44AD under the new Income-tax Act
- EZTax: Income-tax Act 1961 vs 2025 section mapping
- Income Tax Department: Acts, rules and circulars
Written by the Refogo Editorial Team from the official sources above and checked on 2026-10-31. Laws, rates and due dates change, and authorities often extend deadlines, so confirm your own case with a qualified professional. This is general information, not legal or tax advice. Read our editorial policy or report an error to support@refogo.com.
Common questions
Can a private limited company use presumptive taxation?
No. The scheme is for resident individuals, HUFs and partnership firms other than LLPs, with separate provisions for some non-residents.
Do I need to maintain books under presumptive taxation?
Detailed books are not required for the presumptive income, but you should keep records of turnover, bank statements and invoices.
Can a freelancer software developer use the 50% scheme?
It depends on whether the activity is a notified profession. Many technical consultants qualify, but check the definition with your adviser.