Presumptive taxation was designed to be a gift to small businesses — a simpler way to pay taxes without drowning in paperwork. But the Income-tax Act, 2025 has quietly reshaped the rules. If you run a small business, trade in F&O, or advise clients who do, the changes deserve your full attention.
This article focuses specifically on presumptive taxation for business assessees covered under Section 58(2) of the Income-tax Act, 2025 — the provision that broadly corresponds to Section 44AD of the earlier 1961 Act
Why Presumptive Taxation Exists
Presumptive taxation was introduced to simplify compliance for small businesses by allowing them to declare income at a minimum prescribed percentage of turnover — without maintaining elaborate books of account. Under the Income-tax Act, 1961, Section 44AD served this purpose for years.
Before the Finance Act, 2016, taxpayers declaring profits below the prescribed rate were required to maintain books of account and undergo audit only if their total income exceeded the basic exemption limit. The Finance Act, 2016 added a five-year lock-in condition — if a taxpayer opted into the scheme but then declared income below the prescribed rate within those five years, audit became mandatory if total income exceeded the exemption threshold.
The Income-tax Act, 2025 goes further, replacing Sections 44AD and 44AB with Sections 58 and 63 respectively, and establishing what is now effectively a binary framework: accept the prescribed presumptive income, or maintain books and face audit.
What the New Provisions Say
Section 58 — The Core Presumptive Provision
Under Section 58(2), profits are deemed to be the higher of:
(A) 8% of gross receipts/turnover (reduced to 6% for receipts received through specified banking or online modes, before the due date specified in Section 263(1)); or
(B) Profit actually earned.
Section 58(2) applies where turnover:
Does not exceed ₹2 crore; or
Does not exceed ₹3 crore, provided that aggregate cash receipts do not exceed 5% of total turnover or gross receipts.
Section 58(3) mandates that where an assessee claims actual profits below the prescribed percentage, and total income exceeds the basic exemption threshold (₹4,00,000 under the new tax regime), books of account must be maintained and audited under Section 63.
Section 58(4) bars any loss, allowance, or deduction otherwise allowable under the Act from being set off against income computed under Section 58(2).
Section 58(8) adds that where the lock-in violation under Section 58(7) applies and total income exceeds the maximum amount not chargeable to tax, the taxpayer is required to maintain books of account and undergo audit under Section 63.
