The new Income Tax Act keeps the concept of **presumptive taxation** but organises it under **Section 58 – Special provision for computing profits and gains of business or profession on presumptive basis in case of certain residents**.
For small businesses and professionals, Section 58 is important because it offers a simpler way to compute taxable income, reduce paperwork and sometimes lower the risk of scrutiny—provided you understand the rules and limits.
This guide explains Section 58 in plain language for Indian founders, freelancers and small business owners.
> Disclaimer: This article is for general information only and is based on the draft/available text of Section 58 at the time of writing. Please consult your CA and the final notified law and rules before taking any decisions.
1. What is presumptive taxation under Section 58?
Normally, business and professional income is calculated by:
- maintaining full books of account,
- tracking all expenses and depreciation, and
- computing net profit as per sections 26 to 54 (normal computation rules).
Section 58 allows **certain residents** to instead pay tax on a **presumed profit** calculated as a fixed percentage or fixed amount, without claiming individual expenses.
When you opt for Section 58 for an eligible business or profession:
- your **presumptive profit is deemed to be your taxable profit**, and
- the usual computation provisions (sections 26–54) **do not apply** to that business to the extent they conflict with Section 58.
2. Who can use Section 58 presumptive scheme?
Section 58 covers three categories of activities (for **residents only**):
1. **Eligible small businesses** (other than goods carriage business).
2. **Business of plying, hiring or leasing goods carriages**.
3. **Specified professions** (like legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration and other notified professions).
The section also defines two key terms:
- **Eligible assessee** – resident individual / HUF / firm (not LLP) who:
- does not claim certain specified deductions,
- does not carry on a specified profession (for business presumptive),
- does not earn commission or brokerage income, and
- does not run an agency business.
- **Specified assessee** – resident individual or firm (not LLP) eligible for presumptive **profession**.
3. Presumptive scheme for small businesses (Section 58 Table, Sl. No. 1)
This is the successor of the old **Section 44AD** concept.
3.1 Turnover limits
You can use the presumptive scheme for **”any business”** (other than goods carriage business) if you are an **eligible assessee** and your **total turnover/gross receipts** in the tax year:
- **do not exceed ₹2 crore**, or
- **do not exceed ₹3 crore**, where **cash receipts are up to 5%** of total turnover/gross receipts.
In simple terms:
- If almost all your receipts are via banking channels / digital (cash ≤ 5%), the turnover limit is **₹3 crore**.
- If you have more cash receipts, the lower limit of **₹2 crore** applies.
3.2 How profit is computed
Your presumptive profit is the higher of:
1. **6%** of turnover/receipts that are **received through banking/online modes** during the year or before the due date for filing the return; **plus**
2. **8%** of the remaining turnover/receipts (i.e. not covered in point 1);
**OR**
3. The **profit you actually claim to have earned**, if that is higher.
So effectively:
- Digital receipts → presumptive rate **6%**.
- Other receipts (typically cash) → presumptive rate **8%**.
3.3 Practical example
Assume a small trading business with:
- Total turnover: **₹2.5 crore**.
- Receipts through bank/online: **₹2.4 crore**.
- Cash receipts: **₹10 lakh**.
Cash receipts are **4%** of turnover (₹10 lakh / ₹2.5 crore), so the higher **₹3 crore** limit applies and Section 58 presumptive is available.
Presumptive profit would be:
- 6% of ₹2.4 crore = **₹14.4 lakh**; plus
- 8% of ₹10 lakh = **₹0.8 lakh**.
Total presumptive profit = **₹15.2 lakh**.
You pay tax on ₹15.2 lakh (subject to other income, slab rate, etc.) without separately claiming expenses.
4. Goods carriage business (Section 58 Table, Sl. No. 2)
This is the successor of old **Section 44AE**.
4.1 Who can use it?
- Any **resident assessee** (individual or firm, etc.) who **owns not more than 10 goods carriages at any time** during the tax year.
- Ownership includes vehicles taken on **hire purchase or instalments** where payment is still due.
4.2 How profit is computed
Presumptive income is the aggregate of:
- For each **heavy goods vehicle** (gross vehicle weight > 12,000 kg):
- **₹1,000 per ton** of gross vehicle weight or unladen weight, **per month or part of a month** of ownership in the year.
- For each **other goods carriage**:
- **₹7,500 per month** or part of a month of ownership.
**OR** the **actual higher profit** claimed by the assessee.
4.3 Firms – deduction for partner salary and interest
Where the assessee is a **firm**, Section 58 allows deduction of:
- **salary and interest to partners** from the presumptive income,
- subject to conditions and limits of the partnership deduction rule (corresponding to section 35(e) in the new Act).
5. Presumptive scheme for specified professions (Section 58 Table, Sl. No. 3)
This corresponds broadly to old **Section 44ADA**.
5.1 Who is covered?
- **Specified professions** as defined in Section 62(4) – typically legal, medical, engineering, architecture, accountancy, technical consultancy, interior decoration and other notified professions.
- **Specified assessee** – resident individual or firm (not LLP).
5.2 Gross receipts limits
You can use Section 58 presumptive for specified professions if your **gross receipts** in the tax year:
- **do not exceed ₹50 lakh**, or
- **do not exceed ₹75 lakh**, where **cash receipts are up to 5%** of gross receipts.
5.3 How profit is computed
Presumptive profit = the higher of:
- **50% of gross receipts**, or
- **actual profit claimed**.
If a professional wants to declare profit **less than 50%**, and total income exceeds the basic exemption limit, they must keep books and get them audited (see next section).
6. What if actual profit is lower than presumptive?
Section 58(3) says that any assessee in the table who:
- claims that **actual profit is lower than presumptive**, **and**
- has **total income exceeding the basic exemption limit**, must:
1. **Maintain books of account** as per Section 62; and
2. **Get accounts audited** and obtain/file audit report as per Section 63.
In other words, if you want to declare a lower margin than the presumptive percentage, and your income is taxable, you have to follow **full books + audit**.
7. No extra deductions against presumptive income
Under Section 58(4):
> Any loss, allowance or deduction allowable elsewhere in the Act **cannot be claimed separately** against presumptive income computed under Section 58(2).
So you **cannot**:
- claim depreciation separately,
- set off additional business losses or allowances **against the presumptive income of that business**.
However, rules on set-off of losses from other heads (for example, capital loss) still depend on the general provisions of the Act.
8. Lock-in and consequences of opting out (for business presumptive)
Section 58(7) introduces a **five‑year lock-in** rule similar to the old law for business presumptive.
- If an **eligible assessee** declares profit under presumptive business scheme (Sl. No. 1) for a tax year, but **declares profit under normal computation for any of the next five tax years**, then:
- they **cannot claim presumptive benefit again** for **five tax years** after the year in which they opted out.
Further, Section 58(8) says that where this lock‑in applies and total income exceeds the basic exemption limit, the assessee **must maintain books and get them audited**.
9. Cash vs non‑cash receipts – important clarification
For business (Sl. No. 1) and profession (Sl. No. 3) turnover limits and 5% cash test:
- any receipt by **cheque or bank draft that is *not account payee*** is treated as **cash receipt**.
This is important because using non‑account‑payee cheques can:
- increase your “cash receipts” percentage,
- potentially push you **over the 5% limit**, and
- reduce your eligibility for the higher turnover caps (₹3 crore / ₹75 lakh).
10. Books and audit relaxation for goods carriage presumptive
For the goods carriage business (Sl. No. 2), Section 58(10) provides that:
- the general **books and audit provisions (Sections 62 and 63)** do **not apply** to that presumptive business, and
- while checking monetary limits under Sections 62 and 63, **gross receipts/income from this presumptive transport business are excluded**.
This is meant to keep compliance simpler for small transporters using the fixed-amount presumptive scheme.
11. Key takeaways for founders and small businesses
1. **Choose the right scheme:**
- Trading, manufacturing, services → consider presumptive business scheme (6%/8%) if within turnover & cash limits.
- Goods vehicles → consider fixed per‑vehicle presumptive.
- Professionals → consider 50% presumptive if within receipts & cash limits.
2. **Mind the 5% cash ceiling:**
- To access higher limits (₹3 crore / ₹75 lakh), keep cash receipts **within 5%** of turnover/receipts.
3. **Think before opting out:**
- Once you move away from presumptive for business, you may be **locked out for five years**.
4. **No extra deductions:**
- Under presumptive, you trade off detailed expense deductions for **simplicity and certainty**.
5. **Work with your CA:**
- Before choosing presumptive vs regular taxation under the new Act, run the numbers for at least **2–3 years ahead** (turnover growth, margins, cash vs digital mix, audit thresholds).
Handled properly, Section 58 can reduce compliance burden for genuine small businesses and professionals, while giving the tax department a simple and predictable profit baseline.
Related: New Income Tax Act TDS provisions: practical guide for Indian businesses (Section 393) (link: /blog/new-income-tax-act-tds-provisions-practical-guide-indian-businesses-section-393)
Related: New Income Tax Act for small businesses in India – structure, key provisions and compliance (link: /blog/new-income-tax-act-small-businesses-india-overview)
