Income from Business under Income-tax Act, 2025: Sections, ITR Forms & Compliance (AY 2026–27)

Income from Business under the New Income-tax Act, 2025 – Sections, New ITR Forms and Practical Compliance for Tax Period 2026-27

Background

The Income- tax Act, 1961 served the country for over six decades. Its Chapter IV-D – “Profits and Gains of Business or Profession” – ran from Section 28 to Section 44DA, spread across dozens of provisions, explanations, provisos and amendments accumulated over the years. The new Income- tax Act, 2025, which takes effect from 01- 04-2026, replaces the entire framework. The business income chapter is now found in Sections 26 to 66 of the 2025 Act. The structure is tighter, the language is somewhat cleaner, and a few provisions have been merged or re-positioned.

This article examines the key provisions governing income from business under the new Act, the ITR forms notified for AY 2026-27, the unified presumptive taxation framework, and the practical compliance points that every business taxpayer and practitioner must keep in mind before the filing deadlines.

Charging Section and Scope – Section 26

Under the 1961 Act, Section 28 was the charging section for business income. It listed, through multiple clauses and sub- clauses, what constitutes income from business or profession.

Section 26 of the 2025 Act now serves the same purpose. It charges to tax the profits and gains of any business or profession carried on by the assessee during the tax year. The inclusive definition carries forward most of the earlier items – compensation for management, trade association income, export incentives, Keyman insurance proceeds, capital asset conversion gains, and so on.

The term “tax year” replaces “previous year.” In practical terms, for a regular assessee, Tax Year 2026-27 means income earned from 01- 04-2026 to 31- 03-2027.

Computation of Business Income – Section 27

Section 29 of the 1961 Act provided that income from business shall be computed in accordance with the provisions contained in Sections 30 to 43D. The corresponding provision in the 2025 Act is Section 27, which directs that income under the head “Profits and gains of business or profession” shall be computed in the manner provided in Sections 28 to 66.

The essential mechanics remain unchanged: start with gross receipts or turnover, allow the statutory deductions, and arrive at taxable business income. What has changed is the organization and grouping of the deduction provisions.

Key Deduction Sections – Old and New

The following table maps the major deduction provisions for business income from the 1961 Act to their equivalents in the 2025 Act:

Depreciation – Section 33

Under the 1961 Act, depreciation was governed by Section 32. The new Section 33 carries forward the block- of- assets method. The essential rules remain:

• Depreciation is allowed on tangible assets (buildings, machinery, plant, furniture) and intangible assets (know-how, patents, copyrights, trademarks, licences, franchises) acquired on or after 01- 04-1998. Goodwill continues to be excluded.
• The WDV (written down value) method Rates are prescribed by rules.
• If an asset is acquired and put to use for less than 180 days in the tax year, depreciation is restricted to 50% of the prescribed This is exactly the same as earlier.
• Additional depreciation of 20% of actual cost is available for new plant and machinery acquired and installed by a manufacturing or power generation undertaking, subject to the usual conditions – the asset must not be second-hand, must not be office appliances or road transport vehicles, and must not be installed in residential premises.
• Unabsorbed depreciation is carried forward year after year, as

The successor, amalgamation and demerger provisions for pro-rata depreciation allocation are re- stated in Section 33(5). Leasehold improvement depreciation is now explicitly covered in Section 33(6).

One important point: Section 33(7) states that depreciation shall apply “whether or not the assessee has claimed” the deduction. This is a continuation of the mandatory depreciation principle introduced in the 1961 Act from AY 2002- 03, which was the subject of several disputes. The 2025 Act makes it express.

Presumptive Taxation – Section 58 (The Unified Provision)

This is the single biggest structural change in the business income computation framework.

Under the 1961 Act, we had three separate sections:

• Section 44AD for eligible business (turnover up to 2 crore / Rs. 3 crore)
• Section 44ADA for specified professionals (gross receipts up to 50 lakh / Rs. 75 lakh)
• Section 44AE for goods carriage operators (up to 10 vehicles)

The 2025 Act merges all three into one single Section 58. It operates through a Table with three serial numbers:

Sl. No. 1 – Business (other than goods carriage):

• Eligible assessee: Resident individual, HUF, or partnership firm (not LLP).
• Turnover limit: Up to Rs. 2 crores ; or up to Rs. 3 crores where cash receipts do not exceed 5% of
• Deemed income: Higher of (a) 6% of digital turnover plus 8% of balance turnover, or (b) actual profit
• Five-year lock-in: If the assessee opts for Section 58 in one year and opts out within the next five years, he is barred from using Section 58 for the five years following the year of

Sl. No. 2 – Goods carriage business:

• Applicable to any assessee owning not more than 10 goods carriages at any time during the tax
• Deemed income: Rs. 1,000 per ton of gross vehicle weight per month for heavy goods vehicles (GVW exceeding 12,000 kg); Rs. 7,500 per vehicle per month for other goods Part of a month is treated as full month.

No five-year lock-in for this

Sl. No. 3 – Speciied professionals:

• Eligible assessee: Resident individual or firm (not LLP).
• Gross receipts limit: Up to 50 lakhs; or up to Rs. 75 lakhs where cash receipts do not exceed 5%.
• Deemed income: Higher of 50% of gross receipts or actual profit
• The specified professions are defined by reference to Section 62(4): legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, information technology, company secretary, or any other profession notified by the
• Critical change – “Higher of” rule: Under the old Sections 44AD and 44ADA, many assessees routinely declared the minimum presumptive percentages without verifying whether their actual profit was higher. Section 58 explicitly mandates that the declared income must be the higher of the presumptive rate or the actual profit earned. This is an anti- abuse provision. In practice, this means assessees should maintain at least basic records to know their actual profit position, even if they do not maintain formal books of account.

Section 58(4) – No deductions allowed: Losses, allowances and deductions under the Act shall not be set off against income computed under Section 58. This is a stricter provision than the old framework.

Depreciation deemed allowed – Section 58(6): Written down value of assets shall be computed as if the assessee had claimed and been actually allowed depreciation for each relevant tax year. This continues the existing principle from Section 44AD (3) of the 1961 Act.

Books of Accounts – Section 62

Section 44AA of the 1961 Act required maintenance of books of account. The corresponding provision is Section 62 of the 2025 Act. The basic framework continues:

• Specified professionals (legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, IT, company secretary) must maintain books of
• Other business persons must maintain books if income exceeds 1,20,000 or turnover exceeds Rs. 10 lakhs in any of the three preceding tax years.
• For individuals and HUFs, the thresholds are higher – income exceeding 2,50,000 or turnover exceeding Rs. 25 lakhs.
• Books must be preserved for seven tax Where assessment is reopened, they must be kept until the reopened assessment is completed.
• Electronic records are permitted but must remain accessible in India, with daily updated backups stored on servers located in

If an assessee under the presumptive scheme claims income lower than the deemed profit and his total income exceeds the basic exemption limit, he must maintain books of account and get his accounts audited under Section 63.

Tax Audit – Section 63

Section 44AB is now replaced by Section 63. The audit thresholds are:

The form of audit report and the specified date for furnishing the report will be prescribed under the new Income- tax Rules, 2026.

ITR Forms for AY 2026-27

CBDT has notified all ITR forms (ITR-1 through ITR-7, plus ITR-V and ITR-U) for Assessment Year 2026-27. An important clarification: the AY 2026-27 returns cover income earned during FY 2025-26 (01- 04-2025 to 31- 03-2026). These returns are still filed under the old 1961 Act framework. The new Income- tax Act, 2025 applies to Tax Year 2026-27 (income earned from

01- 04-2026), and the returns for that year will be filed in 2027 under the new Act and new Rules.

For business taxpayers filing returns for AY 2026-27 (i.e., for income earned in FY 2025-26), the relevant forms are:

Key changes in AY 2026-27 ITR forms:

1. Reporting of turnover and income from Futures & Options (F&O) trading is now

2. Disclosure of MSME interest disallowance under Section 43B(h) must be

3. Mandatory reporting of interest and remuneration received from partnership

4. Disclosure of investments for taxpayers opting for presumptive taxation in ITR-

5. Extension of ITR-3 due date to 31st August for business taxpayers without audit

6. Introduction of reporting for presumptive taxation under new Section 44BBD for non-

7. Form 10IEA must be filed by business taxpayers who wish to opt for the old tax regime before submitting their

Due Dates for AY 2026-27

 Practical Compliance Points for Tax Year 2026-27

The following points deserve attention from every business taxpayer and practitioner as they prepare for the transition:

1. Know your new section The mapping from old to new is not one- to- one in several cases. For instance, old Section 32 (depreciation) is now Section 33, old Section 43B (payment- basis deductions) is now Section 37, and old Section 44AB (tax audit) is now Section 63. Get used to the new numbers early.

2. Presumptive taxation – verify actual The “higher of” rule in Section 58 means you cannot blindly declare 6%/8%/50% without knowing your actual profit. Maintain at least working papers to demonstrate that your declared income is not less than actual profit. If you are caught declaring less than actual profit under the guise of presumptive rates, the consequences can be serious.

3. Five-year lock-in under Section If a business taxpayer opts for presumptive taxation in Tax Year 2026-27 and opts out in, say, Tax Year 2028-29, he will be barred from coming back to the presumptive scheme for the next five tax years (2029-30 to 2033-34). Plan ahead before opting in.

4. Cash threshold for higher The enhanced turnover limits (Rs. 3 crore for business, Rs. 75 lakh for professionals) apply only when cash receipts and cash payments each do not exceed 5% of the respective totals. Cheques drawn on a bank but not being account payee cheques are treated as cash under Section 58(9). This is important for assessees in semi- urban and rural areas where non- account payee instruments are still common.

5. Books of account – digital The Draft Income- tax Rules, 2026 require electronic records to be stored on servers located in India with daily backups. This is new and has compliance implications for assessees using cloud accounting platforms with overseas servers.

6. Old regime vs new The new tax regime under Section 202 of the 2025 Act (corresponding to Section 115BAC of the 1961 Act) is the default regime. Business taxpayers who wish to continue under the old regime with deductions must file Form 10IEA before filing their return. This is not optional – it is mandatory. Failure to file Form 10IEA in time means you are assessed under the new regime.

7. Section 37 – actual payment The provision corresponding to old Section 43B now resides in Section 37 of the 2025 Act. Employer contributions to PF, ESI, bonus, leave encashment, and interest on loans from specified institutions remain deductible only if paid on or before the due date. The MSME payment discipline introduced through the 43B(h) amendment continues to apply.

8. Advance tax for presumptive Under Section 58, assessees opting for presumptive taxation must pay the entire advance tax in one instalment on or before 15th March of the tax year. If the advance tax payment falls short, interest under Sections 234B and 234C will apply.

Conclusion

The new Income- tax Act, 2025 does not radically alter the substance of business income computation. The rates of presumptive income, the depreciation methodology, and the audit thresholds remain broadly the same. What has changed is the structure – the consolidation of presumptive provisions into one Section 58, the rearrangement of deduction provisions, and the tightening of eligibility conditions through the “higher of” rule and the lock-in period.

For practitioners and assessees, the transition period – particularly Tax Year 2026-27 – demands careful attention. The old section numbers that we have used for decades will no longer apply for returns filed in 2027. The ITR forms for AY 2026-27 (filed in 2026) still follow the old Act, but from the very next year, everything shifts to the new framework. Start familiarizing yourself now, reconcile your working papers with the new section references, and ensure your clients understand the practical implications.

The time for preparation is now. The time for compliance will come soon enough.

*****

Disclaimer: This article is meant for general guidance and professional discussion. It does not constitute legal or tax advice. Readers should consult their tax advisors for matters specific to their facts and circumstances.

Sources:

•  Income-tax Act, 2025 (as amended by Finance Act, 2026), available at gov.in
• Income Tax Bill, 2025 – Full text, PRS India
• ClearTax – Section Mapping Old vs New, ClearTax
• CBDT Notification of ITR Forms for AY 2026-27, Upstox
• Taxmann Analysis – 20 Changes in ITR Forms, LinkedIn
• Section 58 Comparative Analysis, Rajput Jain & Associates
• Draft Income- tax Rules, 2026 – Rule 46 on Books of Account, TaxGuru
• FAQs on Interplay and Transition, Income Tax India