Direct Tax Laws & International Taxation · Profits and Gains of Business or Profession

Special Provisions for Computing Business Income (Presumptive Taxation) for CA Final

Updated 5 October 2026

Special provisions let you compute business income by a fixed rule instead of actual books. Small businesses use a percentage of turnover, professionals use 50% of gross receipts, and goods carriage owners use a per-vehicle amount. Check eligibility and limits first, apply the rate to the right receipts, then decide whether books and audit are still needed.

Understand Special Provisions for Computing Business Income

Normally, business income is receipts minus allowable expenses, worked out from books. That is costly for small taxpayers. Presumptive taxation solves this. The law presumes a profit figure, and you pay tax on that figure without proving expenses.

There are three main schemes. The small business scheme taxes a fixed percentage of turnover. It covers a resident individual, HUF or partnership firm (not an LLP). An assessee who claims the SEZ-unit deduction or the profit-linked deductions in the specified Part C block of the deductions chapter is not eligible. The professional scheme taxes a fixed percentage of gross receipts. It covers a resident individual or partnership firm (not an LLP). A HUF is not covered here. The goods carriage scheme taxes a fixed amount per vehicle per month. It is not limited to residents. It applies to any assessee other than a company who is engaged in the business of plying, hiring or leasing goods carriages and who owns not more than 10 goods carriages at any time during the tax year. Each scheme has strict eligibility conditions, so the first question in any problem is always: is the assessee eligible?

Under these schemes, the presumed profit is deemed to be the full income from that business. Normal deductions for expenses and depreciation are treated as already allowed. The written-down value of assets is also adjusted as if depreciation had been claimed. You cannot claim them again. A partnership firm (other than an LLP) can still deduct salary and interest paid to partners, within the usual limits, from the presumptive profit.

The assessee may declare a lower profit than the presumptive rate. The audit consequence is tested separately for each scheme.

Small business scheme: if the assessee declares a profit lower than the presumptive profit and total income, before deductions from gross total income, exceeds the basic exemption limit, the books and tax audit provisions apply.
Professional scheme: if the income declared is lower than the presumptive 50% of gross receipts and total income, before deductions from gross total income, exceeds the basic exemption limit, the tax audit provisions apply.

Whether a tax audit is actually needed depends on the tax audit conditions that apply to that assessee.

There is also a five-year lock-in, and it applies to both the small business scheme and the professional scheme. If the assessee claims a scheme for a year and then, in any later year within five years, declares lower profit or does not opt for it, that scheme is barred for the next five tax years. Opting out within the lock-in period therefore bars the assessee from that scheme for five years.

There is also a group of special computation rules for certain non-resident businesses, such as shipping, aircraft operation, services and facilities connected with mineral oils, and turnkey construction projects. These tax a fixed percentage of specified receipts as profit. The 10% oil rate applies to amounts received for services and facilities in connection with prospecting for or extraction or production of mineral oils. These rules are covered in detail with non-resident taxation, but you should know the rates.

Key rules to remember

Small business scheme: eligibility: Resident individual, HUF or partnership firm (not LLP); turnover ≤ ₹2,00,00,000 (or ≤ ₹3,00,00,000 if cash receipts ≤ 5% of total turnover); assessee must not claim the SEZ-unit deduction or the profit-linked deductions in the specified Part C block of the deductions chapter; Not available for agency, commission or brokerage business, or for a person carrying on the business of plying, hiring or leasing goods carriages. Goods carriage business is covered by its own separate scheme. An assessee claiming the specified profit-linked deductions is not eligible. Verify the current limits and exclusions in your ICAI material.
Small business scheme: presumptive income: 6% × turnover received by account payee cheque, draft or prescribed electronic mode during the tax year or before the due date of filing the return + 8% × all other turnover; The 6% rate applies only to digital receipts that come in during the tax year or before the due date for filing the return. All other turnover is taxed at 8%.
Professional scheme: eligibility: Resident individual or partnership firm (not LLP) in a specified profession; HUF is excluded; gross receipts ≤ ₹50,00,000 (or ≤ ₹75,00,000 if cash receipts ≤ 5% of gross receipts); Specified professions include legal, medical, engineering, architecture, accountancy, technical consultancy, interior decoration and others notified.
Professional scheme: presumptive income: 50% × gross receipts; The remaining 50% is treated as expenses. You cannot claim extra expenses against it.
Goods carriage scheme: eligibility: Any assessee other than a company, resident or not, engaged in the business of plying, hiring or leasing goods carriages and owning not more than 10 goods carriages at any time during the tax year; If the assessee has more than 10 goods carriages at any time in the year, the scheme is not available. A company cannot use this scheme.
Goods carriage scheme: presumptive income: Heavy goods vehicle (gross vehicle weight exceeding 12,000 kg): ₹1,000 per tonne of gross vehicle weight (or unladen weight) per month. Other goods carriage: ₹7,500 per month per vehicle.; Count a part of a month as a full month. Add the amounts for all vehicles.
Non-resident special rates (profit as % of specified receipts): Shipping 7.5%; aircraft operation 5%; services and facilities in connection with prospecting for or extraction or production of mineral oils 10%; turnkey civil construction or installation projects 10%; Applied to prescribed amounts received or deemed received. The 10% oil rate covers only amounts received for services and facilities in connection with prospecting for or extraction or production of mineral oils. The related non-resident topic gives the exact base for each.

How to solve Special Provisions for Computing Business Income questions

Use this order for any question on presumptive or special computation of business income.

1Identify the assessee: resident or not, and individual, HUF, firm, LLP or company. This decides which scheme can apply. The small business and professional schemes need a resident. The goods carriage scheme does not.
2Identify the business: ordinary trade, specified profession, goods carriage, or a special non-resident business. Check for excluded businesses such as agency or commission. For the small business scheme, also check that the assessee does not claim the SEZ-unit deduction or the specified profit-linked deductions.
3Test the limit: compute total turnover or gross receipts, then compute the cash share. Use the higher limit only if cash receipts are at most 5%. For goods carriage, count the vehicles owned at any time in the year.
4Split receipts by mode if the small business scheme applies. Apply 6% to turnover received by account payee cheque, draft or prescribed electronic mode during the tax year or before the due date of filing the return, and 8% to the rest.
5Compute the presumptive income. For professionals use 50% of gross receipts. For goods carriage, check whether each vehicle is heavy (gross vehicle weight above 12,000 kg), then multiply by months, counting part months as full.
6Add items that sit outside the presumptive income, such as partner salary and interest for a firm, within allowed limits. Note that normal deductions and depreciation are already deemed allowed.
7Decide on books and audit, separately for each scheme. Small business scheme: if the assessee declares a profit lower than the presumptive profit and total income, before deductions from gross total income, exceeds the basic exemption limit, the books and tax audit provisions apply. Professional scheme: if the income declared is lower than the presumptive 50% and total income exceeds the basic exemption limit, the tax audit provisions apply. In both cases the provisions are subject to their own conditions. Also note the five-year lock-in, which applies to both schemes: an assessee who opts out within the lock-in period is barred from that scheme for five tax years.
8Write the conclusion in one line: scheme, eligibility, income figure, and any compliance consequence.

Quickest way: Three-check shortcut for presumptive income

When to use it: Use this for short-answer or MCQ cases where you need the income figure fast.

Check 1, who: for the small business scheme, a resident individual, HUF or firm (not LLP). For the professional scheme, a resident individual or firm (not LLP). For goods carriage, any eligible assessee with not more than 10 goods carriages. If the entity does not fit, stop.
Check 2, limit: compare turnover or receipts with the lower limit. If it is above, see whether cash is 5% or less before using the higher limit.
Check 3, rate: digital turnover × 6% + other turnover × 8%; professional receipts × 50%; vehicles × months × rate (heavy vehicles only above 12,000 kg gross vehicle weight).
Write the figure and add one line on whether books and audit are needed.

Common mistakes in Special Provisions for Computing Business Income

Applying the higher limit without testing the cash condition
Students remember the larger limit and forget it depends on cash receipts being at most 5%.
Fix: Always compute the cash percentage first. Use the lower limit if cash exceeds 5%.
Applying 8% to the whole turnover, or 6% to the whole turnover
Students ignore the mode of receipt given in the case facts.
Fix: Split turnover into digital and other receipts. Apply 6% and 8% separately and add.
Allowing LLPs or companies to use the small business or professional scheme, or letting a HUF use the professional scheme
The words 'firm' and 'partnership' blur the difference, and students treat both schemes as having the same eligible persons.
Fix: The small business scheme covers a resident individual, HUF or partnership firm other than an LLP. The professional scheme covers only a resident individual or partnership firm other than an LLP, so a HUF is out there. Companies and LLPs are out of both.
Claiming depreciation or other expenses on top of presumptive income
Habit from normal computation.
Fix: Deductions are deemed allowed within the presumptive profit. Only a firm's partner salary and interest, within limits, can be deducted additionally.
Counting vehicles by days, or missing part months in goods carriage
Students prorate by days like depreciation.
Fix: Count a part of a month as a full month. Multiply by months owned in the tax year.
Treating every vehicle as a heavy goods vehicle, or treating a vehicle of 12 tonnes or less as heavy
Students apply the per-tonne rate without checking the weight test.
Fix: Only a vehicle with gross vehicle weight exceeding 12,000 kg is heavy. Others are charged at ₹7,500 per month.
Assuming no audit is ever needed under presumptive taxation
The scheme removes book-keeping, so students assume it removes audit too.
Fix: If income declared is lower than the presumptive figure and total income exceeds the basic exemption limit, the books and tax audit provisions apply. Say so in your answer.

Worked examples

Example 1

Ravi, a resident individual trader, has turnover of ₹1,80,00,000 in the tax year. Of this, ₹1,20,00,000 was received through account payee cheques and electronic transfers and ₹60,00,000 in cash. He does not maintain books. Compute his presumptive business income under the small business scheme.

Show the solution

Eligibility: Ravi is a resident individual with ordinary trading business, so the scheme can apply.
Limit test: cash is ₹60,00,000 ÷ ₹1,80,00,000 = 33.3%, which is more than 5%. So the lower limit of ₹2,00,00,000 applies.
Turnover ₹1,80,00,000 is within ₹2,00,00,000, so he is eligible.
Digital receipts: 6% × ₹1,20,00,000 = ₹7,20,000.
Cash receipts: 8% × ₹60,00,000 = ₹4,80,000.
Total presumptive income = ₹7,20,000 + ₹4,80,000 = ₹12,00,000.

Answer: Ravi's business income is ₹12,00,000. No further deduction for expenses or depreciation is allowed.

Example 2

Meera, a transporter, owns two heavy goods vehicles of 15 tonnes gross vehicle weight each, held for the full tax year, and one other goods carriage (a light goods vehicle) bought on 12 October of the same tax year (tax year runs April to March). Compute her presumptive income for the goods carriage business.

Show the solution

Eligibility: she owns 3 goods carriages, which is not more than 10, so the scheme applies.
Heavy test: 15 tonnes exceeds 12 tonnes (12,000 kg), so each of the two vehicles is a heavy goods vehicle.
Heavy vehicles: ₹1,000 × 15 tonnes × 12 months = ₹1,80,000 per vehicle.
Two heavy vehicles: 2 × ₹1,80,000 = ₹3,60,000.
Light vehicle: owned October to March. October counts as a full month, so the months are Oct, Nov, Dec, Jan, Feb and Mar = 6 months.
Light vehicle income at the other-goods-carriage rate: ₹7,500 × 6 = ₹45,000.
Total = ₹3,60,000 + ₹45,000 = ₹4,05,000.

Answer: Meera's presumptive income is ₹4,05,000.

Exam tips

Start every answer with eligibility. Examiners award marks for the resident status, entity type and limit test before the computation.
Read the case for the mode of receipt and the cash share. These two facts decide both the limit and the rate.
For goods carriage, list each vehicle with its weight and months in a small list so part months and the heavy-vehicle test are not missed.
State the audit and books consequence in one line. Many case scenarios are built around an assessee declaring less than the presumptive profit.
Learn the non-resident presumptive percentages as a single list. They are often tested as direct MCQs.

Practice questions from Profits and Gains of Business or Profession

Special Provisions for Computing Business Income: frequently asked questions

Can a professional claim expenses under presumptive taxation?

No. Under the professional scheme, 50% of gross receipts is the income and the other 50% is treated as expenses. You cannot claim more. If you want to claim actual expenses and show a lower profit, you must maintain books and may need an audit.

Is an LLP eligible for presumptive taxation?

No. The small business scheme is for resident individuals, HUFs and partnership firms other than LLPs. The professional scheme is for resident individuals and partnership firms other than LLPs, and a HUF is excluded there. Companies are also excluded.

Do I need a tax audit if I opt for presumptive taxation?

Not if you declare at least the presumptive profit. If you declare a lower profit and your total income exceeds the basic exemption limit, you must maintain books and the tax audit provisions apply. Whether an audit is actually required then depends on the tax audit conditions that apply to you.

How do I count months for goods carriage?

Count each month in which you own the vehicle, and treat a part of a month as a full month. Then multiply by ₹1,000 per tonne for heavy vehicles (gross vehicle weight above 12,000 kg) or ₹7,500 for other goods carriages.