Can I use presumptive taxation if all my clients are abroad?
The scheme is defined by what the business is and by the size of its turnover, not by where the customers happen to sit, so foreign clients do not by themselves take you outside it. Two things do complicate matters. The receipts arrive in foreign currency and have to be converted on a consistent basis to arrive at turnover at all. And the other country may tax the same activity on profit computed from books, which is a different figure from a margin deemed as a proportion of turnover. Settle both before the first filing rather than after.
What happens if I stop using the presumptive scheme?
Leaving is not a neutral decision taken one year at a time. The scheme carries consequences that run over several years: opting out after having opted in restricts your ability to come back for a period, and it brings with it the record-keeping and audit obligations the scheme was relieving you of. So the choice is better made with the next few years in view than on the basis of whichever route gives the lower figure this year. Where a year of heavy expenditure makes actual profit lower than the deemed margin, work out what the exit costs before taking it.
Do I still need to keep books under the presumptive scheme?
The scheme relieves you of computing profit from books; it does not make records pointless. You still have to evidence turnover, because turnover is the base the whole computation rests on, and that means invoices, bank credits and a conversion method where receipts are in another currency. You will also need records if you ever leave the scheme, if the other country you file in computes profit conventionally, or if turnover itself is questioned. Keeping ordinary books while filing on the deemed basis costs very little and removes the worst outcome, which is being unable to prove the figure you declared.
Will a foreign tax credit work on presumptive Indian income?
This is the real cross-border difficulty. The other country typically taxes profit computed from books, while India taxes a margin deemed from turnover, so the two systems are taxing different amounts of income arising from the same work. Relief mechanisms generally assume the same income taxed twice. Where the bases diverge, the claim has to be framed carefully — on the tax actually paid, on income identified so far as possible as the same income — and supported by a computation showing how one figure relates to the other. Prepare that computation when you file, not when a query arrives.
Is money received in foreign currency part of my turnover?
Yes, and the question that follows is which conversion rate and on what date, because that decision determines the turnover figure on which everything else rests, eligibility included. Pick a basis, apply it to every receipt in the year, and record what you did. The errors we see are inconsistency: spot rates on some invoices and a monthly average on others, or conversion on the invoice date for some receipts and the credit date for others. Neither is defensible when turnover sits close to a scheme threshold and a small difference decides whether the scheme applies at all.
Will another country accept a presumptive return as proof of income?
Not on its own, usually. A presumptive return shows a deemed margin rather than a computed profit, so it does not answer the question a foreign authority or a lender is actually asking. Expect to supply the underlying material as well: the invoices, the bank credits, and a reconciliation between turnover, the deemed figure declared and the profit a conventional computation would produce. It is worth preparing that reconciliation at the time of filing. Reconstructing it later, for a mortgage application or a foreign enquiry, is the same work done under pressure with older records.
What is a double tax treaty and what does it actually do?
It is an agreement between two countries that divides up the right to tax. Article by article it decides which country taxes employment income, dividends, interest, royalties, pensions, property and business profits — and where both may tax, it caps what the source country can withhold and tells the other to give credit. It also breaks residence ties and opens a government-to-government channel for disputes. What it never does is apply itself: a treaty position is claimed. See our treaty work.
What happens if the two countries disagree about which of them can tax me?
The treaty has a procedure for exactly that. You apply to the competent authority in your residence country, which takes the case up with its counterpart, and the two negotiate a position that removes the double taxation. Some treaties add binding arbitration if they cannot agree. It is slow and it runs on documents, so the practical work is preserving the record and filing protective claims while the clock runs. See our treaty work.
