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Presumptive Taxation: Small Business Audits
Section 58 of Income Tax Act 2025
The Core Concept:
The Presumptive Taxation Scheme is a simplified compliance framework that allows small taxpayers to bypass the administrative burden of maintaining exhaustive books of account. Instead, taxable income is determined by "deeming" a fixed percentage of gross turnover or receipts as profit.
A codified standard prioritizing certainty, anti-abuse measures, and digital alignment.
Structural Consolidation: From Multiple Sections to One
The 2025 Act streamlines the legal landscape by consolidating separate provisions into a unified Section 58, simplifying tax compliance and administration.
IT Act 1961
  • Section 44AD (Small Businesses)
  • Section 44AE (Goods Carriages)
  • Section 44ADA (Specified Professionals)
2
IT Act 2025
  • Section 58(2) Table Pt 1 (Small Businesses)
  • Section 58(2) Table Pt 2 (Goods Carriages)
  • Section 58(2) Table Pt 3 (Specified Professionals)
Section 58(2) Summarized

Note: Receiving payment via a non-account-payee cheque or bank draft counts as a cash receipt.
What is the Eligible Assessee?
Table Sl. No. 1
Regular Businesses — Who Qualifies
Resident individual, HUF, or firm (excluding LLP) who:
  • Doesn't claim deduction under Section 144 (Special provisions in respect of newly established Units in Special Economic Zones.).
  • Doesn't claim Chapter VIII deductions (Deductions to be made in computing total income).
  • Doesn't run specified profession (per Sec 62(4)).
  • Has no commission/brokerage income.
  • Doesn't run agency business.
Table Sl. No. 3
Specified Assessee — Professions
Resident individual or firm (excluding LLP) — no additional restrictions.
Other Key Considerations
Audit Triggers
If claiming actual profits lower than presumptive rates AND total income exceeds the basic exemption limit, the assessee must:
  • Maintain books of account per Section 62.
  • Get accounts audited per Section 63 and furnish the audit report.
No Deductions Allowed
Once presumptive profits are computed under Section 58(2) (e.g., 6%/8% blended rate for businesses, per-vehicle rates for carriages, or 50% of receipts for professionals), NO:
  • Business losses
  • Allowances
  • Deductions
  • Any other expenses
can be claimed against this income.
Partner Payments Exception
For firms computing presumptive income under Sl. No. 2 (plying, hiring, or leasing goods carriages):
  • Salary and interest paid to partners can be deducted from the presumptive income computed under sub-section (2).
  • Subject to conditions and limits in Section 35(e) ( which is Section 40(b) of Income Tax Act 1961).
5-Year Lock-In and Mandatory Audit
An eligible assessee declaring profits under Table Sl. No. 1 (regular small businesses, excluding goods carriages):
  • Opts in by declaring presumptive income per sub-section (2).
  • If they exit in any of the next 5 tax years by declaring lower actual profits (violating sub-section (1)'s higher-of rate), they become ineligible for Section 58 benefits for another 5 years following that exit year.
  • If total income exceeds the basic exemption limit, mandatory books of account (Section 62) + audit (Section 63) required.
The New Paradigm: Simplicity with Discipline
The 2025 framework balances ease of compliance with stronger accountability — making presumptive taxation simpler, but not without discipline.
Streamlined Operations
Businesses benefit from reduced administrative burdens, allowing them to focus more on growth and less on complex record-keeping.
Enhanced Oversight
It instroduces stricter audit triggers and lock-in provisions, ensuring adherence and discouraging opportunistic tax planning.
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