Presumptive Taxation – TAX VIC

Section 58 Explained: Key Changes in Presumptive Taxation Under Budget 2025

TAXVIC — Wed, 07 May 2025 12:29:34 +0000

The Union Budget 2025 has introduced significant reforms in the presumptive taxation regime by proposing Section 58 in the Income Tax Act. This new section aims to consolidate and replace Sections 44AD, 44ADA, and 44AE, simplifying tax compliance for small businesses, professionals, and transport operators.

This article delves into Section 58’s key features, applicability, benefits, and implications for resident and non-resident taxpayers.

What is Section 58?

Section 58 is a proposed provision in the Income Tax Bill, 2025, designed to streamline the presumptive taxation schemes for:

Small businesses
Specified professionals
Transport operators

Section 58 aims to provide a more cohesive framework for taxpayers opting for presumptive taxation by unifying the earlier provisions under Sections 44AD, 44ADA, and 44AE.

Key Features of Section 58

1. Applicability

Section 58 applies to:

Resident individuals, Hindu Undivided Families (HUFs), and partnership firms (excluding LLPs) engaged in eligible businesses or professions.
Non-resident individuals engaged in specified activities under certain conditions.

2. Turnover Thresholds

Businesses:
- Turnover up to ₹2 crore.
- Extended to ₹3 crore if cash receipts do not exceed 5% of total turnover.
Professionals:
- Gross receipts up to ₹50 lakh.
- Extended to ₹75 lakh if cash receipts do not exceed 5% of total receipts

3. Presumptive Income Rates

Businesses:
- 8% of total turnover or gross receipts.
- 6% if receipts are through digital modes.
Professionals:
- 50% of total gross receipts.
Transport Operators:
- ₹1,000 per ton of gross vehicle weight for each month or part thereof during which the goods carriage is owned.

4. Higher of Presumptive Income or Actual Profit

Taxpayers must declare income as the higher of: The presumptive income calculated per the specified rates.

The actual profit earned.

The higher amount must be declared if the actual profit exceeds the presumptive income.

5. Maintenance of Books and Audit Requirements

Taxpayers opting for presumptive taxation under Section 58 are not required to:

Maintain detailed books of accounts.
Undergo audit under Section 44AB.

However, if a taxpayer declares income lower than the presumptive income and their total income exceeds the basic exemption limit, they must:

Maintain books of accounts as per Section 44AA.
Get the accounts audited under Section 44AB.

6. Lock-in Period

Once a taxpayer opts for presumptive taxation under Section 58, they must continue to do so for five consecutive assessment years. If they opt out before this period, they cannot avail themselves of the scheme for the next five years.

Presumptive Taxation for Non-Resident Individuals (NRIs)

While Section 58 primarily applies to resident taxpayers, the Income Tax Bill, 2025, has introduced Section 44BBD, a presumptive taxation scheme specifically for non-resident individuals providing services or technology in India for setting up electronics manufacturing facilities.

Key Features of Section 44BBD

Applicability:
- Non-residents providing services or technology to a resident company establishing or operating an electronics manufacturing facility in India.
Presumptive Income:
- 25% of the total amount received or receivable is deemed as business income.
Tax Rate:
- Effective tax payable is less than 10% on gross receipts.

This provision aims to provide tax certainty and simplify compliance for non-residents engaged in specified activities in India.

Benefits of Section 58

Simplified Compliance:
- Reduced the burden of maintaining detailed books and undergoing audits.
Encouragement of Digital Transactions:
- Lower presumptive rates for digital receipts promote cashless transactions.
Clarity and Uniformity:
- Consolidation of previous sections into a single provision simplifies understanding and application.

Considerations Before Opting for Section 58

Actual Profit vs. Presumptive Income:
- If actual profits are consistently lower than the presumptive income, regular taxation may be more beneficial.
Ineligibility for Certain Deductions:
- Taxpayers cannot claim deductions under Sections 30 to 38 if they opt for presumptive taxation.
Lock-in Period:
- Opting out before the completion of five years restricts the ability to re-enter the scheme for the next five years.

The introduction of Section 58 in the Income Tax Bill, 2025, marks a significant step towards simplifying tax compliance for small businesses, professionals, and transport operators in India. By consolidating existing provisions and introducing clear guidelines, the government aims to make the tax system more accessible and less burdensome for eligible taxpayers.

The new Section 44BBD offers a simplified taxation regime for non-resident individuals engaged in specified activities, promoting ease of doing business in India.

Need assistance in understanding how these changes impact you?
Contact Tax Vic for personalized tax and compliance solutions.

Note: The Income-Tax Bill, 2025, which aims to replace the Income-Tax Act, 1961, was introduced in the Lok Sabha on February 13, 2025. This bill primarily seeks to simplify the language and remove redundant provisions, while retaining most of the existing tax rates and definitions .As of now, it has not yet been passed by Parliament. Therefore, the Income-Tax Bill, 2025 remains under consideration. If enacted, the Income-Tax Bill, 2025 is proposed to come into effect on April 1, 2026.

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Section 44ADA: Presumptive Tax Scheme for Professionals in India

TAXVIC — Thu, 16 Nov 2023 08:49:57 +0000

Income tax rules in India include a number of features designed to make the taxes procedure easier for different types of taxpayers. Section 44ADA of the Income Tax Act, which is expressly tailored for certain specified professionals, is one such provision. This section describes a presumptive taxation approach designed to reduce the burden on professionals when determining their taxable income. In this article, we will go over the specifics of Section 44ADA, such as qualifying criteria, presumptive income computation, benefits, and ramifications.

What is Section 44ADA of the Income Tax Act?

Section 44ADA of the Income Tax Act is a specific provision that permits some professionals to compute their income on a presumptive basis. Instead of keeping thorough books of accounts, qualifying professionals can report a predetermined percentage of their gross revenues as income for tax reasons. 44ADA can be adopted only if your total receipts during a financial year is below 75 lacs.

Eligibility for Section 44ADA

Section 44ADA is available to professionals working in particular sectors. The following categories are eligible:

Legal Professionals: This scheme is available to advocates, solicitors, and other legal practitioners.
Medical Professionals: This section applies to doctors, dentists, and other medical practitioners.
Engineering or Architectural Professionals: Engineers and architects are covered by Section 44ADA.
Accounting Professionals: Chartered accountants and accountants in practice.
Technical Consultancy Professionals: Professionals who offer technical, architectural, engineering, or other related services.

Presumptive Income Calculation under Section 44ADA

Section 44ADA calculates presumptive income as a percentage of gross receipts. The presumptive income for professionals covered by this clause is 50% of total gross receipts. What it means is whatever is your receipts during the year, 50% will be considered as your net profit and taxes would be calculated on that 50% portion. Do not confuse gst filing with adopting 44ADA under income tax, the both laws are different, do not overlap.Only individuals can adopt for 44ADA.

For Example: Assume a software engineer earns INR 10,00,000 in total gross earnings in a fiscal year. According to Section 44ADA, their taxable income will be INR 5,00,000 (50% of INR 10,00,000).

Benefits of Section 44ADA

Simplified Compliance: One of the key advantages is that the compliance load is decreased. Professionals do not need to keep detailed records of accounts, which simplifies tax filing.
Presumptive Rate: The presumptive rate of 50% is considered appropriate and aids in the avoidance of income calculation conflicts.

When must an assessee keep books and have their finances audited?

Professionals who choose Section 44ADA are not required to keep regular books of accounts or to submit to a tax audit. They must, however, file an income tax return if their total income exceeds the maximum amount not chargeable to tax (currently INR 2.5 lakh for persons under the age of 60). In such circumstances, businesses should keep basic records of gross receipts and costs for future reference.

Implications of choosing Section 44ADA

While Section 44ADA has various benefits, professionals should carefully consider its ramifications before implementing it:

Higher Tax Liability: In some circumstances, the presumptive rate of 50% may result in a higher taxable income than actual income.
Ineligible Deductions: Professionals who choose this scheme are not eligible for deductions under Sections 10A, 10AA, 10B, 10BA, or Chapter VI-A.
No Carry Forward of Losses: If this scheme is chosen, losses cannot be carried forward or offset against future income.
No claim of depreciation, expenses etc.: since the whole idea of 44ADA is to “presume” (which is why it is called presumptive taxation), your expenses would be irrelevant as you are given the flexibility to consider 50% as your income straightaway. So do not get confused about claiming expenses when you are going to adopt for 44ADA.

Conclusion

Section 44ADA of the Income Tax Act is a helpful provision in India for qualified professionals. It streamlines tax compliance, alleviates the stress of keeping thorough books of accounts, and eliminates the necessity for a tax audit. However, before choosing for this presumptive taxation structure, professionals should carefully analyze their unique circumstances, income levels, and deductions. To make an informed decision and ensure compliance with tax legislation, it is best to consult a tax specialist.

Need Professional Guidance: info@taxvic.com

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TAXVIC

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