[Opinion] Complexity within Simplicity – Presumptive Taxation under the Income Tax Act 2025

Hitesh Kumar & Avinash K – [2026] 185 taxmann.com 1 (Article)

1. Introduction

Presumptive taxation was introduced to simplify tax compliance for small businesses by allowing income to be declared at a minimum prescribed percentage of turnover without maintaining detailed books of account. Under the Income-tax Act, 1961, Section 44AD largely functioned as a simplified taxation mechanism intended to reduce compliance burden for small taxpayers while improving tax administration.

Prior to the amendments introduced by the Finance Act 2016, taxpayers declaring profits below the prescribed percentage were generally required to maintain books of account and undergo audit where their total income exceeds the basic exemption limit. The Finance Act, 2016 introduced a five-year lock-in condition, under which taxpayers who opted for the presumptive scheme but subsequently opted out within five years by declaring income below the prescribed rate were required to maintain books of account and get their accounts audited if their total income exceeded the basic exemption limit.

The Income-tax Act, 2025 significantly restructures this framework by replacing Sections 44AD and 44AB with Sections 58 and 63. While the prescribed percentage and turnover thresholds largely remain unchanged, the new law establishes a structure where taxpayers effectively face two alternatives—either accept the presumptive income prescribed under Section 58 or maintain books of account and undergo audit when declaring lower profits.

Against this background, this article analyses the major changes introduced in the presumptive taxation regime for businesses under Section 58 of the Income-tax Act, 2025 (corresponding broadly to Section 44AD of the 1961 Act). The article also examines several interpretational issues and controversies arising from the revised provisions.

This article only focuses on Presumptive taxation for Business assessee covered u/s 58 (2) Sl.no 1 (Earlier section 44AD)

2. Key Provisions

2.1 Section 58 – Presumptive Taxation

Section 58(2) (A) deems profits at 8% of gross receipts or turnover (6% for receipts through specified banking/online modes) during the tax year or before the due date specified in section 263(1) in respect of that tax year for eligible assessee,

(B) Profit claimed to have been actually earned, whichever is higher.

Section 58(2) applies where the total turnover:

(a) does not exceed Rs. 2 crore; or

(b) does not exceed Rs. 3 crore where aggregate of cash receipts does 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 (Rs. 4,00,000 in case of new tax regime), books of account must be maintained and audited under Section 63.

Section 58(4) provides:

“Any loss, allowance or deduction allowable under the provisions of this Act shall not be allowed against the income computed under sub-section (2).“

Section 58(7) Where an eligible assessee declares profit for any tax year as per the provisions of sub-section(2) and he declares profit for any of the five tax years succeeding such tax year in contravention of the provisions of sub-section(1), then he shall not be eligible to claim the benefit of the provisions of this section for five tax years subsequent to the tax year in which the profit has not been declared as per the provisions of the said sub-section.

Section 58(8) Irrespective of anything contained in foregoing provision of this section, where provisions of sub-section (7) are applicable to an eligible assessee and his total income exceeds the maximum amount which is not chargeable to income-tax, he shall be required to keep and maintain such books of account and other documents as required under section 62 and get them audited and furnish a report of such audit as required under section 63

2.2 Section 63 – Audit Thresholds

Section 63 prescribes audit requirements based on turnover thresholds:

(a) Rs. 1 crore for businesses;

(b) Rs. 10 crore where aggregate cash receipts does not exceed 5% of total sales, turnover or gross receipts and cash payments does not exceed 5% of total payments; and

Critically, Section 63 also mandates audit where actual profits are claimed below prescribed percentage as specified under Section 58 (2), creating a separate audit trigger independent of turnover thresholds.

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