Presumptive taxation is the closest thing India's income tax law offers to a shortcut for small taxpayers — declare a fixed share of turnover or receipts as income, skip the detailed bookkeeping, and, within limits, skip the audit too. For nearly a decade, that shortcut lived across three separate provisions — Sections 44AD, 44ADA and 44AE. From this year, all three sit inside a single section of India's new Income-tax Act, 2025. The rules haven't changed much. The address has.
The Three Schemes at a Glance
The substance of each scheme is unchanged — only the citation moves. Section 58 organises the three categories as a table with three serial numbers, rather than three standalone sections:
| Category | Old Section (1961 Act) | New Section (2025 Act) | Threshold | Presumptive Income |
|---|---|---|---|---|
| Business | Sec. 44AD | Sec. 58, Sl. No. 1 | ≤ ₹2 cr (₹3 cr if cash ≤ 5%) | 8% of turnover (6% for digital receipts) |
| Specified professionals | Sec. 44ADA | Sec. 58, Sl. No. 3 | ≤ ₹50 lakh (₹75 lakh if cash ≤ 5%) | 50% of gross receipts |
| Goods carriage | Sec. 44AE | Sec. 58, Sl. No. 2 | Up to 10 vehicles owned | ₹1,000/tonne GVW/month (heavy) or ₹7,500/vehicle/month (other) |
One Year, Two Rulebooks
Here's the wrinkle worth flagging before anything else. Right now, in the middle of AY 2026-27 filing season, you're still working under the old numbers. Income earned in FY 2025-26 is assessed entirely under the Income-tax Act, 1961 — so your return will (correctly) cite Section 44AD, 44ADA or 44AE, not Section 58.
The Income-tax Act, 2025 came into force on 1 April 2026, but it governs income earned from FY 2026-27 onwards — what the new Act calls a "Tax Year" rather than a "Previous Year" or "Assessment Year". That means the business income you're earning right now already falls under the new Section 58 framework, even though the return you're about to file for last year still uses the familiar old sections. Two rulebooks, one overlapping year — worth keeping straight, especially if you're pencilling in next year's advance tax.
The Fine Print: When "Presumptive" Isn't Optional
Presumptive taxation isn't purely a taxpayer's choice once you're in it. If you declare profit below the deemed rate — say, a business with ₹90 lakh turnover reports only ₹4 lakh in actual profit, well under the 8% (₹7.2 lakh) presumptive figure — and your total income for the year, from all sources, exceeds the basic exemption limit (₹4 lakh under the new tax regime, ₹2.5 lakh under the old regime), the benefit of skipping books and audit disappears. Regular books of account and a tax audit under Section 63 (old Section 44AB) become mandatory instead. Many taxpayers assume opting in guarantees no audit, ever — it only guarantees no audit if you stick to, or beat, the deemed rate.
There's also a five-year lock-in to factor in. Once you use presumptive taxation for a business in a given year, declaring profit below the prescribed rate in any of the following five years costs you access to the scheme for that business for the five years after that — pushing you back onto books and audit for the lock-out period too, if income exceeds the exemption limit. It rewards consistency and can penalise a single bad year.
A Few Things Still Being Worked Out
As with any large-scale renumbering exercise, a handful of questions are still being debated among tax professionals. One recurring one: where a taxpayer runs more than one business, or carries a loss under another head of income, exactly how far the bar on setting off "other losses and deductions" against presumptive income extends isn't entirely settled. Until the department issues clearer guidance, this is exactly the kind of situation where a quick conversation with your CA before filing is worth more than a general rule of thumb.
Is It Right for You?
Presumptive taxation tends to make the most sense when your actual margin runs close to or above the deemed rate, when you'd rather skip the cost of maintaining full books, or when a full audit would be disproportionate to the size of your operation. It's less attractive if your real margins run persistently thin — a business genuinely earning 3–4% on turnover ends up taxed on a notional 6–8% instead, unless it's willing to take on books and audit to declare the lower, real number. And since moving in and out isn't free, it's worth deciding with next year in mind, not just this one.
How This Plays Out in Practice
A freelance designer, ₹32 lakh in receipts
Billed almost entirely by bank transfer. Under Section 44ADA (Section 58, Sl. No. 3 from FY 2026-27), she can declare ₹16 lakh (50%) as taxable income, with no books to maintain and no audit — provided she doesn't later declare a lower profit that trips the exemption-limit condition above.
A kirana store, ₹1.6 crore turnover
About 85% of sales settle through UPI, the rest in cash — cash stays under 5% of turnover, so the ₹3 crore threshold applies, not ₹2 crore. Digital sales are declared at 6%, the small cash portion at 8%, comfortably under Section 44AD (Section 58, Sl. No. 1), with no books or audit required.
A transporter, four vehicles
Two heavy trucks at 14-tonne GVW, two smaller ones. Under Section 44AE (Section 58, Sl. No. 2), the heavy trucks are deemed to earn ₹14,000 each per month (₹1,000 × 14 tonnes), the smaller ones ₹7,500 each — a flat per-vehicle calculation that doesn't depend on turnover at all.
Conclusion
Presumptive taxation remains one of the simplest ways for small businesses, professionals and transport operators to stay compliant without the overhead of full bookkeeping — that hasn't changed under the Income-tax Act, 2025. What has changed is where the rules live: three familiar sections have become one, wrapped in new terminology, even as this year's filing still runs on the old numbers. If you're unsure which rulebook applies to your return, or whether presumptive taxation still suits your actual margins, RNR & CO can walk through the numbers with you before you file.
Frequently Asked Questions
What is presumptive taxation, in simple terms?
A scheme that lets certain small taxpayers declare a fixed percentage of turnover or receipts as taxable income, instead of maintaining full books and computing actual profit.
Who is eligible for the business scheme (Sec. 44AD / new Sec. 58, Sl. No. 1)?
Resident individuals, HUFs, and partnership firms (excluding LLPs) with turnover up to ₹2 crore — or up to ₹3 crore if cash receipts stay under 5% of the total.
Can professionals like doctors, lawyers or CAs use presumptive taxation?
Yes, under Section 44ADA (Section 58, Sl. No. 3 from FY 2026-27), for specified professionals with gross receipts up to ₹50 lakh, or ₹75 lakh if cash receipts stay under 5%. The presumptive rate is 50% of receipts.
Is there a scheme for a small transport business?
Yes — Section 44AE (Section 58, Sl. No. 2), for anyone owning up to 10 goods carriages. It uses a fixed deemed income per vehicle per month, rather than a percentage of turnover.
Can I still claim depreciation or expenses separately if I opt in?
No. The presumptive rate is meant to already account for business expenses and depreciation. If you genuinely earned more than the deemed rate, you must declare the higher actual profit instead.
What happens if I declare a lower profit than the presumptive rate?
If your total income from all sources also exceeds the basic exemption limit for the year, you'll need to maintain regular books and get a tax audit done, even though you were eligible for the scheme.
Is there a penalty for opting out once I've used the scheme?
Yes — a five-year lock-in. Use the scheme in one year, then declare profit below the prescribed rate in any of the following five years, and you lose eligibility for the five years after that.
Do I still have to pay advance tax under presumptive taxation?
Yes, but as a single instalment of 100% of the tax due by 15th March, rather than the usual quarterly schedule other taxpayers follow.
Will my AY 2026-27 return use Section 44AD or the new Section 58?
Section 44AD (and 44ADA/44AE). Income earned in FY 2025-26 is governed entirely by the Income-tax Act, 1961. Section 58 only becomes relevant for income earned from FY 2026-27 onwards.
Which ITR form applies if I opt for presumptive taxation?
Most individuals, HUFs and firms using these schemes file ITR-4 (Sugam), provided they don't have other complications such as capital gains or foreign income that would require a different form.
