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.
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
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.
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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.
