PRESUMPTIVE TAXATION: INDIA’S OPEN SECRET OF EASY EVASION

AUTHOR – ARKA BHATTACHARYA, ADVOCATE

BEST CITATION – ARKA BHATTACHARYA, PRESUMPTIVE TAXATION: INDIA’S OPEN SECRET OF EASY EVASION, ILE MULTIDISCIPLINARY JOURNAL, 4 (2) OF 2025, PG. 355-360, APIS – 3920-0007 | ISSN – 2583-7230.

ABSTRACT

Presumptive taxation in India emerged as a streamlined relief mechanism for micro- and small taxpayers overwhelmed by detailed bookkeeping and costly audits. Under this model, eligible businesses and professionals declare income at prescribed percentages of gross receipts, foregoing exhaustive account maintenance. While the regime has expanded the tax base and reduced compliance burdens, it has simultaneously generated persistent revenue leakages. Minimal documentation, inflexible turnover ceilings, and rate differentials incentivize underreporting receipts, fragmenting income across entities, and legal-form arbitrage. The Income Tax Act, 2025 (hereinafter referred to as ITA 2025) embeds presumptive provisions in Section 58, codifies a “higher-of” rule—mandating actual profits be declared when they exceed deemed income—and disallows all deductions and loss set-offs against presumptive earnings. Yet these refinements do little to address the regime’s fundamental design flaws: threshold cliffs, antifragility gaps, and digital-versus-cash distortions. This article offers a comprehensive analysis of the scheme’s legislative evolution; its core mechanics; principal avenues for abuse; and, in particular, how the 50% deeming rate may be manipulated. It then evaluates ITA 2025’s amendments and proposes calibrated reforms—aggregation rules, sectoral safe harbours, data-driven triggers, reimbursement carve-outs, calibrated digital incentives, and flexible entry–exit protocols—that can preserve simplicity while fortifying revenue integrity.

Keywords

Presumptive Taxation, Income Tax Act 2025, Higher-Of Rule, Turnover Thresholds, Tax Base Erosion, Income Fragmentation, Aggregation Rules, Digital Transaction Incentives.