To ease compliance and facilitate non-cash transactions, the finance minister has proposed raising the threshold limit for qualifying businesses for the presumptive tax scheme from Rs 2 crore to Rs 3 crore and specified firms with a turnover of Rs 50 lakh, now up to Rs 75 lakh.

Under the Presumptive Tax Scheme (PTS), taxpayers are not required to maintain books of account. The scheme relieves small taxpayers who find it challenging to retain them and incur additional costs.

Depending on the type of business and profession, the scheme is defined under three different sections of the Income Tax Act, 44AD, 44ADA, and 44AE.

As of now, under section 44AD of the Act, a resident individual, Hindu Undivided Family (HUF) and partnership firm (excluding Limited Liability Partnership or LLP) engaged in any business whose turnover or gross receipt not exceeding Rs 2 crore can opt for the scheme for the respective financial year.

Likewise, the scheme is available to individuals or partnerships (except LLPs) practising any of the professions listed in Section 44AA of the Act (such as legal, accounting, medical, architect, etc.) and earning less than Rs 50 lakhs. The benefits of section 44AE of the Act are available to everyone who commutes, hires or leases goods vehicles (not more than 10 goods vehicles at any time of the year).

In Budget 2023, the finance minister proposed to increase the limit for businesses under Section 44AD to Rs 3 crore and the limit for professionals under Section 44AE to Rs 75 lakh.

However, the limit increase is conditional that businesses’ or professionals’ cash receipts must account for less than 5% of the total turnover.

The main benefit of the PTS is that taxpayers are not required to keep full books of account. Also, generally, one has to pay advance tax in four instalments. Still, if the taxpayer adopts PTS under Section 44AD/44ADA, they must pay the total advance tax in instalments on or before 15 March.

After filing your income tax return under the PTS, you must do the same for the next five years. If the assessee fails to do so within one year, he shall not be allowed to file tax returns under the PTS within the subsequent five years and must have the accounts tax audited for the year if the income exceeds the maximum amount not levied.