Reconcile investment details with bank records, Form 26AS and AIS before tax filing
Taxpayers under the presumptive scheme must maintain consistency between declared income, bank transactions, and investments
India’s presumptive taxation regime, long seen as a low-compliance and hassle-free option for small businesses and professionals, is entering a more transparent phase. The government’s move to mandate disclosure of year-end investments in tax returns has raised fresh questions around compliance, reporting requirements, and filing procedures.
Eligibility and benefits
The presumptive income-tax scheme simplifies tax filing for small businesses and specified professionals by allowing them to declare income at a fixed percentage of turnover or receipts. It applies to small businesses with a turnover of up to ₹2 crore, or ₹3 crore if 95 per cent of transactions are digital. They can declare 6-8 per cent of total sales as profit.
The scheme also covers specified professionals, such as doctors, lawyers, engineers, chartered accountants, and architects, with income of up to ₹50 lakh, or ₹75 lakh if cash receipts are below 5 per cent. They can declare 50 per cent of their receipts as profit.
“Its key benefits include no requirement to maintain detailed books, no tax audit, and a simpler advance tax system with a single payment by March 15. This makes it ideal for small traders, freelancers, and independent professionals seeking lower compliance,” says Richa Sawhney, partner-tax, Grant Thornton Bharat.
Investment disclosure: Pros and cons
From the financial year 2025-26, the government has introduced a new column in the tax return form for presumptive taxpayers, requiring them to disclose their year-end investments. This requirement was not present last year. Taxpayers must file the form online on the Income Tax Department’s portal, incometax.gov.in.
The government already has extensive data on taxpayers’ financial transactions from banks, mutual funds, stock exchanges, insurers, and property registrars. “For those whose investments are fully supported by declared income and savings, this requirement should not pose any issue. In fact, disclosing investments in the return creates an official record at the time of filing, which can serve as a first line of defence and reduce the chances of automated mismatch notices,” says Sawhney.
However, the disclosure could expose inconsistencies and increase the risk of scrutiny for taxpayers who have understated their income under the presumptive scheme.
Penalties for wrong disclosure
If a taxpayer underreports income, a penalty of 50 per cent of the tax due may be imposed. In cases of deliberate misreporting, the penalty can rise sharply to 200 per cent.
“If investments cannot be explained, the entire amount may be treated as unexplained income and taxed at 60 per cent, along with applicable surcharge and cess. No deductions, losses, or basic exemption benefits can be used to reduce this liability,” says Sawhney.
Compliance-related dos and don’ts
Taxpayers should accurately report both professional income and personal investments, and ensure that income, expenses, and investments remain consistent with one another. They should review the Annual Information Statement (AIS), Form 26AS, and bank statements before filing, and keep basic documents such as bank records and investment proofs handy.
“At the same time, taxpayers should avoid showing disproportionately low income alongside high investments without a valid explanation, assuming that presumptive taxation exempts them from scrutiny, ignoring notices or mismatch alerts from the tax department, or relying on rough or unverified figures while filing returns,” says Abhishek Soni, chief executive officer (CEO) and co-founder, Tax2win.
How to avoid mistakes, correct them
Taxpayers opting for presumptive taxation should keep a few key points in mind while filing returns. They should use the correct form, ITR-4 Sugam, select the appropriate presumptive option, and ensure consistency between declared income and investment patterns. “It is also important to reconcile and cross-check all investments with bank statements, Form 26AS, and AIS—verifying amounts, PAN details, and dates—and to report all investments accurately,” says Deepashree Shetty, partner-global mobility services, tax and regulatory services, BDO India.
If taxpayers identify an error in their return, they should act promptly. The tax system allows voluntary corrections, and taxpayers can file a revised return within the prescribed deadline to rectify mistakes. “If that window has passed, you can still file an updated return (ITR-U) by paying the applicable additional tax and interest. Acting early can help minimise penalties and avoid stricter action if the tax department flags the discrepancy first,” says Soni.
When investments exceed income
In some genuine cases, investments may exceed current income, especially due to past savings, loans, gifts or inheritance, or the sale of assets such as property, gold, or shares.
“The key is to have a clear explanation backed by proper documents such as loan agreements, gift deeds, or sale records, and reflect these correctly in the return. If the source cannot be explained, such investments may be treated as unexplained income and taxed at a higher rate,” says Soni.
Stick to or exit this regime?
Taxpayers under the presumptive scheme must maintain consistency between declared income, bank transactions, and investments. Those whose investments are clearly explainable and whose lifestyle and banking patterns align with their declared income can continue with the regime. “However, it is advisable to periodically review one’s tax position and consult a tax expert before deciding whether to opt in or move out of the presumptive taxation scheme,” says Shetty.
The additional investment disclosure under the presumptive tax scheme is essentially a transparency measure. “While it should not affect honest taxpayers with explainable investments, it will help flag cases where declared income does not match asset creation. It signals that simplified taxation will coexist with technology-driven checks to prevent misuse,” says Sawhney.
The writer is a Delhi-based independent journalist
Records to support high investments
• Bank, broker, demat and mutual fund statements
• Contract notes/statements for shares, MFs, bonds, F&O, AIF/PMS
• Fixed/recurring deposit details and interest certificates
• ELSS, PPF/EPF, NPS statements and insurance premium records
• Property agreements/deeds and loan or repayment documents for large investments
Source: BDO India
aniltikotekar4sme.com 