New Section 58 and Presumptive Taxation (Sections 44AD, 44AE, 44ADA) – Complete Guide for FY 2025-26 | Income Tax Act 2025 Explained
The Income Tax Act continues to evolve with structural amendments aimed at improving compliance and preventing misuse of simplified taxation schemes. One of the important areas of discussion in recent amendments is the introduction and restructuring of Section 58 and its interplay with the presumptive taxation provisions under Sections 44AD, 44AE and 44ADA.
If you are a small business owner, transporter, freelancer, consultant, doctor, CA, lawyer, or any professional opting for presumptive taxation, understanding these provisions is not optional — it directly impacts your tax liability, compliance burden and litigation risk.
This detailed guide explains:
- What the new Section 58 provides
- How it affects business and professional income
- A deep breakdown of Sections 44AD, 44AE and 44ADA
- Comparative analysis in tabular format
- Judicial principles governing presumptive income
- Practical implications for FY 2025-26 (AY 2026-27)
Let’s get into it properly.
1. Introduction to New Section 58 – Why It Matters
Section 58 historically dealt with certain disallowances. However, recent restructuring clarifies and consolidates the non-allowability of certain deductions when income is computed under special provisions.
The objective is simple:
- Prevent double deductions
- Avoid artificial reduction of presumptive income
- Ensure consistency in computation under special tax regimes
If you opt for presumptive taxation under Sections 44AD, 44AE or 44ADA, you cannot later selectively claim additional deductions unless specifically allowed.
This is where Section 58 becomes critical.
2. Structural Breakdown of Section 58
The restructured Section 58 broadly covers:
- Expenses not deductible
- Personal expenses
- Capital expenditure
- Tax payments
- Payments prohibited by law
- Deductions disallowed under specific provisions
Key Structural Elements
| Component | What It Covers | Practical Meaning |
| Personal expenses | Non-business use expenses | Cannot reduce taxable income |
| Capital expenditure | Asset purchases | Not deductible as revenue expense |
| Income-tax payments | Tax paid | Not allowed as deduction |
| Prohibited payments | Illegal payments | Disallowed |
| Overlapping deductions | Double benefit restriction | Prevents misuse |
In presumptive taxation, this section ensures that taxpayers cannot reduce income further beyond the deemed profit percentage.
3. Section 44AD – Presumptive Taxation for Small Businesses
Section 44AD is designed for small businesses with turnover within the prescribed threshold.
Eligibility
- Resident Individual
- Resident HUF
- Resident Partnership Firm (not LLP)
- Turnover within prescribed limit (as notified)
Presumptive Rate
| Mode of Receipt | Presumptive Income |
| Digital receipts | 6% of turnover |
| Cash receipts | 8% of turnover |
No further business expenses are allowed once income is computed under 44AD.
Important Conditions
- If you declare lower income than prescribed, audit becomes mandatory (subject to conditions).
- Five-year lock-in concept applies.
- Books of accounts are not mandatory if income declared as per scheme.
Practical Example
If turnover = ₹80,00,000
Digital receipts = ₹60,00,000
Cash receipts = ₹20,00,000
Presumptive income =
6% of 60L + 8% of 20L
= 3.6L + 1.6L
= ₹5.2L
This becomes your business income.
No claiming depreciation, rent, salary, electricity separately.
That’s the trade-off: simplicity vs detailed deduction.
4. Section 44AE – Goods Transport Business
Section 44AE applies to persons engaged in plying, hiring or leasing goods carriages.
Key Features
- Applies to up to specified number of vehicles owned.
- Income calculated per vehicle per month.
- Separate rates for heavy and light goods vehicles.
Computation Structure
| Type of Vehicle | Presumptive Income |
| Heavy Goods Vehicle | Per ton per month basis |
| Other Goods Vehicle | Fixed amount per month |
Unlike 44AD, here income is vehicle-based, not turnover-based.
Why This Matters
Transporters often have irregular receipts. Section 44AE simplifies taxation by fixing deemed income per vehicle.
Again — once opted, normal expense deductions are restricted.
5. Section 44ADA – Presumptive Taxation for Professionals
Section 44ADA applies to specified professionals:
- Chartered Accountants
- Doctors
- Lawyers
- Engineers
- Architects
- Interior decorators
- Technical consultants
- Other notified professions
Presumptive Rate
50% of gross receipts
Illustration
If a professional earns ₹40,00,000:
Presumptive income = 50% = ₹20,00,000
No further expense deduction allowed (except specific allowed deductions if applicable).
Compliance Advantage
- No detailed books required
- No audit (if conditions satisfied)
- Simplified filing
But again — if you declare lower income, audit provisions may apply.
6. Comparative Analysis – 44AD vs 44AE vs 44ADA
This is where most taxpayers get confused.
Here’s a clean comparison:
| Particulars | Section 44AD | Section 44AE | Section 44ADA |
| Applicable to | Small Businesses | Goods Transporters | Professionals |
| Basis of Income | % of Turnover | Per Vehicle Per Month | 50% of Gross Receipts |
| Books Required | Not mandatory | Not mandatory | Not mandatory |
| Audit Required | If lower income declared | If conditions not met | If lower income declared |
| Eligible Assessee | Resident Individual/HUF/Firm | Any person owning goods vehicles | Resident Professionals |
| Lock-in Period | Yes | No fixed lock-in | No strict lock-in |
If someone casually chooses the wrong section, it creates compliance disaster.
7. Impact of Section 58 on Presumptive Schemes
Now the real issue.
Under presumptive taxation:
- Expenses are deemed allowed.
- Depreciation is deemed allowed.
- No double deduction permitted.
- No separate claim of business expenditure.
Section 58 reinforces this structure.
What You Cannot Do
- Declare 6% income under 44AD and then claim rent separately.
- Declare 50% under 44ADA and then reduce laptop depreciation.
- Claim personal expenses.
- Deduct income tax paid.
If you try, assessment will reverse it.
8. General Definitions and Interpretational Issues
Certain terms matter significantly:
Turnover
Includes total sales but excludes GST collected (subject to interpretation).
Gross Receipts
Total professional receipts before expenses.
Goods Carriage
As defined under Motor Vehicles Act.
Misclassification here leads to litigation.
9. Judicial Principles Governing Presumptive Taxation
Courts have consistently held:
- Presumptive income schemes are optional.
- Once opted, separate expense deduction is barred.
- If lower income declared, audit compliance must follow.
- Deemed depreciation reduces WDV for future years.
Taxpayers often ignore the depreciation adjustment. That is a serious mistake.
10. Common Practical Mistakes
Let’s be blunt.
Most taxpayers:
- Opt 44AD casually without long-term planning.
- Exit scheme within 5 years.
- Declare lower income to reduce tax but skip audit.
- Mix personal and business accounts.
- Forget WDV impact.
This is not tax planning. It is negligence.
11. When Should You Opt Presumptive Taxation?
You should consider it if:
- Your actual profit margin is higher than presumptive rate.
- You want compliance simplicity.
- You don’t maintain proper books.
- Your expenses are not significantly high.
Avoid it if:
- Your real profit margin is very low.
- You plan to take bank loans (books required).
- You have heavy depreciation claims.
12. Strategic Considerations for FY 2025-26 (AY 2026-27)
Before opting:
- Project 5-year profit trend.
- Consider audit exposure.
- Evaluate GST compliance.
- Analyze cash vs digital receipts.
- Consider future expansion plans.
Tax is not just about current year saving. It’s about consistency and defensibility.
13. Practical Computation Flow (Simplified Format)
| Step | Action |
| Step 1 | Identify nature of income (Business/Profession/Transport) |
| Step 2 | Check eligibility conditions |
| Step 3 | Apply presumptive rate |
| Step 4 | Avoid further expense deductions |
| Step 5 | Compute total income |
| Step 6 | Apply rebate / slab rates |
| Step 7 | File return accordingly |
Simple on paper. Risky if misunderstood.
14. Final Observations
The introduction and restructuring of Section 58 strengthens the integrity of presumptive taxation.
Sections 44AD, 44AE and 44ADA are compliance simplification tools — not loopholes.
If used intelligently, they reduce compliance burden and litigation.
If misused, they increase scrutiny risk.
Presumptive taxation is a strategic decision, not a shortcut.
Frequently Asked Questions (SEO Section)
Is Section 44AD compulsory?
No, it is optional.
Can I claim depreciation separately under 44AD?
No, it is deemed allowed.
What happens if I declare lower income under 44ADA?
Audit provisions may apply.
Can transport business opt for 44AD instead of 44AE?
Depends on eligibility and conditions.
Does Section 58 restrict deductions under presumptive taxation?
Yes, it prevents double deductions and disallows specific expenses.
Conclusion
The interaction between Section 58 and presumptive taxation provisions is more technical than it appears. Small businesses and professionals must understand not only the rate of presumptive income but also the structural restrictions attached to it.
Before opting for any presumptive scheme in FY 2025-26, evaluate:
- Long-term profit expectations
- Compliance capacity
- Audit exposure
- Future financing needs
Tax simplification should not come at the cost of strategic blindness.
