Summary: The New Income Tax Bill 2025, recently tabled in Parliament, seeks to simplify and consolidate the provisions of the Income Tax Act, 1961. While the new bill aims to streamline tax computation, it introduces significant changes to presumptive taxation under Section 58, which consolidates Sections 44AD, 44ADA, and 44AE of the existing law. A major inconsistency arises in Section 58(4), which disallows all deductions and loss set-offs against income computed presumptively. This contrasts with the current provisions, where deductions under Sections 30 to 38 are deemed already accounted for but allow other losses or deductions. Under the new bill, taxpayers opting for presumptive taxation face stricter limitations. For instance, business losses from books cannot offset presumptive income (intra-head set-off), and rental property losses cannot offset business income (inter-head set-off). Additionally, earlier year business losses cannot be carried forward, and deductions like medical insurance premiums under the old tax regime are disallowed. These changes restrict benefits previously enjoyed by taxpayers, such as combining presumptive taxation with deductions or loss adjustments. While the government aims to align the changes with its promotion of the new tax regime, the outright disallowance of loss set-offs contradicts the continuity promised with existing provisions. This development may adversely impact small taxpayers relying on presumptive schemes and raise questions about equitable tax practices.
The New Income Tax Bill 2025 was recently tabled in the parliament. It aims to rationalize the provisions of The Income Tax Act 1961 and present it in a simpler language. The Government and the people involved have to be appreciated for completing this enormous task in such a short time.
This exercise has led to some inconsistencies when compared with the stated position as per the existing law. One such occurrence can be found in S.58 “Special provision for computing profits and gains of business or profession on presumptive basis in case of certain residents.”
This section in the new bill combines the provisions under S.44 AD, S.44 ADA and S.44 AE of the existing Act and presents the computation of presumptive income in an easy-to-read tabular form. Broadly it is consistent with the existing provisions.
The inconsistency with the existing provisions appears in S.58 (4) which read as “Any loss, allowance or deduction allowable under the provisions of this Act, shall not be allowed against the income computed in the manner specified in sub-section (1).”
The existing provision under The Income Tax Act, 1961 found in the relevant sections read as “Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed.”
As it is evident, the existing law does not allow deductions under section 30 to 38 because while computing income on presumptive basis they are presumed to have been already allowed. But the provisions of the new bill introduce a blanket ban on all deductions. Even set off of losses are proposed to be disallowed if the income is computed on a presumptive basis.
There is no mention in the relevant provisions of the existing law on disallowance of any other nature of this kind. To understand this inconsistency better, few situations where the new bill proposes to disallow loss or deductions which are allowable as per the existing law are given below-
A resident individual or a firm carrying on multiple business with an aggregate turnover of less than 2 Crores cannot set off the loss of a business computed by maintaining books of account against the income offered for a business computed on presumptive basis. ( Intra head set off )
A resident individual will not be able to set off his current year losses on letting of house property on rent against his business income computed on presumptive basis. (Inter head set off)
A resident partnership firm offering income on a presumptive basis for the first time will not be allowed to set off its earlier year business losses. (Carry forward of loss and set off )
A resident individual carrying on business and computing his income on presumptive basis henceforth will not be allowed to claim deduction for paying his medical insurance premium, if he opts to file his return under the old taxation regime. ( Chapter VI A Deductions )
There may be many more situations where the provisions under Section 58 (4) of the new bill is disadvantageous to the taxpayer. Under the existing provisions, these taxpayers were enjoying the advantage of declaring profit on a presumptive basis as well as claiming deductions and losses allowable under the other provisions of the act ( excluding the deductions under S. 30 to 38 of the existing Act )
But through this enactment in the new bill, the Government proposes to put a cap on such benefits. Disallowing the deductions appears to be in line with the Government’s thinking of promoting the new taxation regime. But not allowing the losses does not augur well with the Government’s claim of continuity with the spirit of the existing law.
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