Computing Profits and Gains of Profession on Presumptive Basis: Clause 58 of the Income Tax Bill, 2025 vs. Section 44ADA of the Income Tax Act, 1961

Clause 58 Special provision for computing profits and gains of business or profession on presumptive basis in case of certain residents.

Income Tax Bill, 2025

Introduction

Clause 58 of the Income Tax Bill, 2025 introduces a special provision for computing profits and gains of business or profession on a presumptive basis for certain residents. This provision is designed to simplify the tax compliance process for small taxpayers engaged in specified professions. The clause draws parallels with the existing Section 44ADA of the Income Tax Act, 1961, which also provides for presumptive taxation for certain professionals. This article provides a comprehensive analysis of Clause 58, focusing on the provisions related to item no. 3 of the table corresponding to Section 44ADA, and compares it with the existing Section 44ADA of the Income Tax Act, 1961.

Objective and Purpose

The legislative intent behind Clause 58 is to ease the compliance burden on small taxpayers engaged in specified professions by allowing them to declare a fixed percentage of their gross receipts as income. This approach reduces the need for maintaining detailed books of accounts and undergoing audits, thereby simplifying the tax process. Historically, presumptive taxation has been introduced to encourage voluntary compliance and reduce administrative costs.

Detailed Analysis

1. Key Provisions of Clause 58

Clause 58 of the Income Tax Bill, 2025, outlines the framework for presumptive taxation for specified professions. The key provisions include:

• Exemption from sections 26 to 54 for specified businesses or professions, as mentioned in the table under sub-section (2).
• For item no. 3 of the table, the provision applies to any profession referred to in section 62(1)(a), where the assessee is a specified resident, and the total turnover or gross receipts do not exceed Rs. 50,00,000, or Rs. 75,00,000 if cash receipts do not exceed 5% of the total turnover.
• Income is deemed to be 50% of the gross receipts or the actual profit, whichever is higher.
• Assessees claiming lower profits than the presumptive income must maintain books of accounts and undergo audits as per sections 62 and 63.
• No deductions for losses or allowances are permitted against the presumptive income.
• Provisions for depreciation and asset valuation are specified.
• Eligibility criteria for assessees are defined, excluding limited liability partnerships and certain other entities.

2. Comparison with Section 44ADA of the Income Tax Act, 1961

Section 44ADA provides a similar presumptive taxation scheme for professionals. The main points of comparison are:

Eligibility and Scope

• Clause 58: Applies to specified professions u/s 62(1)(a), with a turnover limit of Rs. 50,00,000 or Rs. 75,00,000 under certain conditions.
• Section 44ADA: Applies to professions referred to in section 44AA, with a turnover limit of Rs. 50,00,000, extendable to Rs. 75,00,000 if cash receipts are under 5%.

Computation of Income

• Clause 58: Deems income to be 50% of gross receipts or actual profit, whichever is higher.
• Section 44ADA: Deems income to be 50% of gross receipts or a higher claimed amount.

Compliance Requirements

• Clause 58: Requires maintenance of books and audits if actual profits are lower than presumptive income.
• Section 44ADA: Similar requirements for maintaining books and audits if declared income is lower than presumptive income.

Restrictions on Deductions

• Clause 58: Disallows deductions for losses or allowances against presumptive income.
• Section 44ADA: Deems deductions u/ss 30 to 38 to have been allowed, preventing further deductions.

Asset Depreciation

• Clause 58: Specifies that asset depreciation is calculated as if it were claimed and allowed.
• Section 44ADA: Similar provision for asset depreciation.

Practical Implications

The introduction of Clause 58 is expected to have significant implications for professionals opting for presumptive taxation. It simplifies compliance by reducing the need for detailed accounting and audits, thereby saving time and costs. However, the requirement to maintain books and undergo audits if actual profits are lower than presumptive income may deter some taxpayers from opting for this scheme. Additionally, the exclusion of certain entities, such as limited liability partnerships, may limit the applicability of the provision.

Conclusion

Clause 58 of the Income Tax Bill, 2025, aligns closely with Section 44ADA of the Income Tax Act, 1961, in its objective to simplify tax compliance for professionals. While both provisions offer significant benefits, the specific conditions and compliance requirements may influence the choice of taxpayers. Future reforms could focus on expanding the scope of eligible entities and refining compliance requirements to enhance the effectiveness of presumptive taxation.

Full Text:

Clause 58 Special provision for computing profits and gains of business or profession on presumptive basis in case of certain residents.

Dated: 10-3-2025