Presumptive Taxation & E-Invoicing for MSMEs and Professionals: Simplicity or Complexity?

By Shreyas Shrivastava

Introduction

India’s taxation ecosystem continues to evolve with an emphasis on simplifying compliance for Micro, Small, and Medium Enterprises (MSMEs) and professionals. The presumptive taxation schemes under Section 44AD and 44ADA of the Income Tax Act have long offered relief from cumbersome bookkeeping and compliance burdens. The recent Budget 2025 has introduced significant reforms aimed at enhancing the scheme’s scope, increasing ease of doing business, and aligning with the country’s digital tax compliance framework. Simultaneously, e-invoicing mandates under GST are reshaping how small businesses handle their invoicing and input credit systems.

This article analyses whether these changes truly simplify taxation for small entities or introduce new layers of complexity, particularly in light of digital infrastructure limitations and evolving compliance standards.

Presumptive Taxation Schemes: A Snapshot of Simplicity

Section 44AD – For Small Businesses

Under Section 44AD, eligible resident individuals, Hindu Undivided Families (HUFs), and partnership firms (other than LLPs) can declare profits presumptively at 8% of turnover, or 6% if receipts are through digital means. The turnover threshold, raised from ₹2 crore to ₹3 crore, applies only if cash receipts do not exceed 5% of the total turnover—a nudge toward digitalisation.

This scheme offers substantial relief to small traders and businesses by eliminating the need to maintain detailed books of accounts or undergo audit procedures, provided the declared profit meets the threshold.

Section 44ADA – For Professionals

Professionals such as lawyers, doctors, engineers, architects, accountants, and others notified under Section 44AA(1) are eligible for presumptive taxation under Section 44ADA. Here, 50% of gross receipts are deemed to be income, and the threshold has now been increased to ₹75 lakh, subject to the condition that 95% or more of receipts are digital.

This increase in limit expands the scheme’s applicability, allowing a wider range of professionals to benefit from compliance relief without engaging auditors or maintaining exhaustive accounts.

Budget 2025: Key Updates and Clarifications

The Union Budget 2025 introduced a crucial incentive: Zero tax liability for proprietorships with turnover up to ₹2 crore under Section 44AD, provided they opt for the presumptive scheme and their declared profits meet the threshold. This is seen as a strong push for small businesses to formalize operations and adopt digital practices.

Another vital update is the simplification of advance tax payments. Now, for taxpayers opting for Section 44AD, 100% of advance tax is due only by March 15, as against quarterly payments, reducing the compliance burden through the year.

Further, the eligibility criteria have been clarified:

• For 44AD: Turnover up to ₹3 crore with ≤5% cash receipts.
• For 44ADA: Gross receipts up to ₹75 lakh with ≥95% digital receipts.

These changes reinforce the policy's intent—to reward digital compliance and reduce audit thresholds for small entities.

E-Invoicing for MSMEs: Streamlining or Straining?

Benefits: Compliance Meets Efficiency

E-invoicing, which was initially applicable only to large taxpayers, has gradually been extended to MSMEs with turnover thresholds being lowered in phases. It mandates real-time invoice authentication through the Invoice Registration Portal (IRP) and generates a unique Invoice Reference Number (IRN).

For MSMEs, the benefits are significant:

• Standardized formats enable interoperability across systems.
• Real-time reporting ensures better alignment with GST filings.
• Input Tax Credit (ITC) claims become smoother, reducing disputes and mismatches.
• Automation lowers manual errors, fosters faster payment cycles, and builds credibility with vendors and financial institutions.

Challenges: Digital Divide and Compliance Pressure

However, adoption is not without friction. Many small enterprises, particularly in tier-2 and tier-3 towns, lack digital infrastructure and technical know-how. Integrating ERPs or accounting software with the IRP demands investment and staff training.

Common pain points include:

• Errors in invoice format leading to ITC denial or penalties.
• Additional cost for software upgrades or external consultants.
• Compliance anxiety among non-tech-savvy proprietors.

The transition thus requires capacity-building and phased implementation support to prevent non-compliance due to technical gaps.

Who Benefits the Most?

The reforms are best suited for:

• Retailers and service providers with regular digital inflows who prefer simplified compliance.
• Freelancers and professionals such as lawyers, consultants, and architects with annual revenue below ₹75 lakh, who can declare 50% of receipts as profit and avoid detailed filings.
• Businesses whose actual profits are close to or exceed 6–8%, as they benefit from lower tax burden and compliance overhead under presumptive norms.

Conclusion: Digital Simplicity Needs Support

While the intent behind presumptive taxation and e-invoicing reforms is undoubtedly to ease compliance and promote formalization, the journey toward simplicity must be supported by digital infrastructure investment, awareness programs, and handholding measures for small taxpayers. The latest updates under Budget 2025 make these schemes more inclusive and beneficial, but only those with adequate digital maturity and predictable income flows will extract full value.

In this digital tax era, simplification and complexity coexist—depending largely on the taxpayer's preparedness and access to tools.