Presumptive Taxation (Section 44AD/44ADA)
A simplified scheme letting small businesses and professionals declare a fixed percentage of turnover as taxable profit, without maintaining detailed books or facing a mandatory tax audit.
Presumptive taxation lets eligible small businesses (Section 44AD) and specified professionals like doctors, lawyers, and chartered accountants (Section 44ADA) declare a prescribed percentage of their turnover or gross receipts as taxable profit, instead of computing actual profit from detailed books of accounts. For businesses, the presumptive rate is typically 8% of turnover, 6% for receipts through banking channels, and for specified professionals it's 50% of gross receipts, subject to eligibility thresholds on annual turnover or receipts.
The appeal is largely compliance simplicity: businesses and professionals under this scheme are generally exempt from maintaining detailed books of account and from a mandatory tax audit, provided they stay within the eligibility limits. The tradeoff is that you're taxed on the presumptive percentage even if your actual profit margin is lower, so it suits businesses whose real margins are close to or above the presumptive rate more than those with genuinely thin margins.
This glossary entry is for general informational purposes only and does not constitute professional tax, legal, or financial advice. Rules and rates change, so consult a qualified Chartered Accountant for advice specific to your situation.