Summary: The presumptive taxation scheme under Section 58 of the Income Tax Act, 2025 provides a special method of computing income for eligible businesses, specified professionals and operators of goods carriages. This article explains the categories of eligible taxpayers, the prescribed presumptive profit rates, the turnover and gross-receipt limits, and the conditions relating to cash receipts. It examines the treatment of income from goods carriages, the 50% presumptive rate for specified professions and the 6% and 8% rates applicable to eligible businesses. It also discusses the consequences of declaring profits below the prescribed rates, including maintenance of books of account and tax audit, the five-year restriction for certain businesses, depreciation treatment, deductions and partners’ remuneration. The author further considers whether actual profits exceeding the presumptive percentage should be disclosed and examines judicial decisions concerning additions for unexplained expenditure, cash credits and alleged bogus purchases where income has been returned on a presumptive basis. The discussion includes Nand Lal Popli v. DCIT, CIT v. Surinder Pal Anand and Thomas Eapen v. ITO, and Lakshmanram Bheemaji Purohit v. ITO. The article emphasises that taxpayers should evaluate the statutory conditions and compliance implications before selecting the presumptive taxation scheme.
- Introduction to Presumptive Taxation Scheme
- Opting Out/Not Declaring Income as per Presumptive Taxation
- 1. Mandatory Maintenance of Books of Accounts
- 2. Mandatory Tax Audit
- 3. Cool-off Period for Residual Business Category
- The Fine Print Conditions and Compliances
- 1. No Deduction or Allowances from Deemed Profits/Gains
- 2. Effect of Depreciation on Assets to Be Assumed
- 3. No Deduction of Partner's Salary/Interest in Residual Business & Specified Professions Category
- 4. Presumptive Scheme Does Mean Deduction Without Actual Expenses
- Landmark Case Laws
- 1. Nand Lal Popli V. DCIT [ITA No. 1161/CHD/2013], ITAT Chandigarh
- 2. CIT V. Surinder Pal Anand [ITA No. 156 of 2010], Punjab & Haryana High Court & Shri Thomas Eapen V. ITO [ITA No. 451/COCH/2019], ITAT Cochin
- 3. Lakshmanram Bheemaji Purohit V. ITO [ITA No. 196/BANG/2025], ITAT Bengalore
Introduction to Presumptive Taxation Scheme
Under normal provisions of the act, profits/gains earned from business/profession are taxed under Income Head “Profits & Gains of Business/Profession” (PGBP), and Section 26 to 66 mostly covers the provisions governing business/professions.
Section 58(1) of the act makes the Section 26 to 54 non-applicable for specified business/professions so that prescribed manner of presumptive scheme can operate for deemed computation profits/gains from specified business/professions.
Section 58(2) mandates that for specific business/professions the profits/gains from such business/professions shall be computed in the specified manner and shall be deemed to be profits/gains chargeable to tax under head PGBP. If income of specified business/profession is not declared as per presumptive scheme, mandatory maintenance of proper books of accounts and tax audit of same is required. In other words, it is mandatory to declare income of specified business/profession under presumptive scheme if the said business/profession is specified in it, or maintenance of books and tax audit is required. The same is discussed later in this article.
A brief summary of specified business/profession and their computation method is as follows:
| CATEGORY | DEEMED PRESUMPTIVE PROFITS/GAINS |
|---|---|
| Business of plying/hiring/leasing of Goods Carriage,
And Assessee does not own more than 10 goods carriage during tax year. *Heavy Goods Vehicle: Where Registered Gross Vehicle Weight exceeds 12,000 Kgs *Part of month considered as full month. |
Higher of the following:
(a) For Heavy Goods Vehicle: Rs. 1,000 per ton of unladen weight X No. of months for which vehicle owned. (+) For other vehicles: Rs. 7,500 per vehicle X No. of months for which vehicle owned. Or (b) Profit actually claimed to be earned. *From the above computed profits/gains, salary and interest to partners in accordance with limits u/s 35(e) shall be deducted where assessee is Partnership Firm/LLP. |
| Specified Professions of following fields:
Legal; Medical; Engineering; Architectural; Accountancy; Technical Consultancy; Interior Decoration; Information Technology; Company Secretary And Assessee being Individual or Partnership Firm (other than LLP) resident in India. And Gross Receipts less than Rs. 50 Lakhs or less than Rs. 75 Lakhs where gross receipts in cash are upto 5% of total gross receipts. |
Higher of the following:
(a) 50% of Gross Receipts Or (b) Profit actually claimed to be earned. |
| Residual Business i.e. any Business other than:
Business of Plying/Hiring/Leasing of Goods Carriage; Business of earning Commission/Brokerage; Agency Business And Assessee being Individual or HUF or Partnership Firm (other than LLP) resident in India, who does not claim deduction u/s 138 to 152 (Chapter VIII-C) And Turnover/Gross Receipts less than Rs. 2 Crores; or less than Rs. 3 Crores where turnover/gross receipts in cash are upto 5% of total turnover/gross receipts. |
Higher of the following:
(a) For Turnover/Gross Receipts received in any mode including Cash- 8% of such turnover/gross receipts (+) For Turnover/Gross Receipts received via banking channels other than cash- 6% of such turnover/gross receipts Or (b) Profit actually claimed to be earned. |
Opting Out/Not Declaring Income as per Presumptive Taxation
Declaring income as per presumptive taxation scheme is mandatory for specified business/professions. When any assessee whose business/profession is specified for presumptive taxation and such assessee declares profit/gains lower than the presumptive limits, following compliances become mandatory:
1. Mandatory Maintenance of Books of Accounts
As per Section 62(2), when any assessee carrying business/profession specified in presumptive scheme claims profit/gains to be lower than deemed presumptive profits/gains, it is mandatory to maintain proper books of accounts. The same condition is also provided in Section 58(3).
2. Mandatory Tax Audit
In accordance with Section 63(1), any assessee carrying business/profession specified in presumptive scheme claims profits/gains to be lower than deemed presumptive profits/gains is requires to get books of accounts of business/profession audited from Chartered Accountant. The same condition is also enshrined in Section 58(3).
3. Cool-off Period for Residual Business Category
Where assessee carrying business specified under Residual Business Category declares profits/gains lower than deemed presumptive profits/gains for any tax year, such assessee shall not be eligible to opt for presumptive taxation scheme for next 5 years. In other words, for next 5 years such assessee must maintain proper books of accounts and get them audited. This condition is enshrined in Section 58(7) & 58(8).
The Fine Print Conditions and Compliances
Although the presumptive taxation scheme is supposed to make income tax provisions simpler for small taxpayers, various conditions and regulations have been structured in a way which can only be understood by reading between the lines. Some of the important hidden conditions relating to presumptive taxation scheme are as follows:
1. No Deduction or Allowances from Deemed Profits/Gains
Section 58(4) blankly states that any loss, allowance or deduction which is allowable under other general provisions of the act shall not be deducted from the income computed under presumptive taxation scheme for specified business/professions. As such, once the deemed presumptive profits/gains have been calculated, the same cannot be reduced further unless specifically provided to the contrary.
2. Effect of Depreciation on Assets to Be Assumed
The allowance for depreciation on assets used in specified business/profession shall be assumed to have been given full effect in computing income under presumptive taxation scheme and no further allowance for depreciation shall be allowed from the income computed under presumptive scheme.
Accordingly, as per Section 58(6), the WDV of assets shall be reduced by depreciation considered above.
3. No Deduction of Partner’s Salary/Interest in Residual Business & Specified Professions Category
In category of Residual business and Specified Professions, where assessee is Partnership Firm, there shall be no deduction of Partner’s Salary/Interest form the deemed presumptive profits/gains. However, the act is silent on an important question. Whether deemed presumptive profits/gains can be considered to have already given effect to Partner’s Salary/Interest ? Independent interpretation must be made for the same considering facts and circumstances of the case.
Contrastingly, for category of Goods Carriage business, Section 58(4) expressly provides that Partner’s Salary/Interest in accordance with Section 35(e) shall be deduced from deemed presumptive profits/gains of Goods Carriage business. The same is explained in table given above.
4. Presumptive Scheme Does Mean Deduction Without Actual Expenses
A common misunderstanding among various taxpayers is that opting for presumptive taxation scheme means that they can declare profits/gains from business/profession as per computation method even if their actual profits/gains is more, which is completely wrong.
The presumptive taxation scheme provides option for less compliance by mandating minimum criteria of profits/gains, and not maximum. An assessee opting for presumptive scheme still needs to declare profits/gains only after deducting actually incurred expenses from turnover/gross receipts, subject to minimum amount of profits/gains prescribed. To say, if the actual profits/gains are higher than the computed ones, actual will be taxed; and if the actual profits/gains are lower than the computed ones, computed ones will be taxed.
Landmark Case Laws
1. Nand Lal Popli V. DCIT [ITA No. 1161/CHD/2013], ITAT Chandigarh
Additions for unexplained Expenditure u/s 69C of Income Tax Act, 1961 can’t be made where assessee had opted for presumptive taxation scheme and where turnover or profit percentage was not rejected or found to be erroneous by A.O.
2. CIT V. Surinder Pal Anand [ITA No. 156 of 2010], Punjab & Haryana High Court & Shri Thomas Eapen V. ITO [ITA No. 451/COCH/2019], ITAT Cochin
Additions for unexplained Cash Credits u/s 68 of Income Tax Act, 1961 were deleted as the assessee had opted for presumptive scheme and there was no liability on assessee to present details and explanation for each entry as he was not required to maintain books of accounts. Further, the amount of addition made by A.O. were less than the turnover declared by the assessee and the A.O. had not rejected turnover itself.
3. Lakshmanram Bheemaji Purohit V. ITO [ITA No. 196/BANG/2025], ITAT Bengalore
Additions for Bogus Purchases u/s 69C of Income Tax Act, 1961 on basis of mere information from GST department can’t be made where assessee had opted for presumptive taxation scheme, provided complete purchase details to A.O., no independent inquiry was made by A.O. in relation to alleged Bogus Purchases and the turnover or profit percentage were not questioned by A.O.
In the end, it can be understood that although the presumptive taxation scheme is meant for simplification of compliance by small taxpayers, the understanding of this scheme itself is not so simple, and any decisions must be made with apposite professional judgement.
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Contact Details of Author: CA Aftab Ranjan Sehgal,Ranjan Sehgal & Associates, First Floor, Jagdambay Market, Phagwara Gate, Jalandhar, (E) [email protected]
