Presumptive Taxation Under ITA 2025 | Definition and Purpose

Presumptive Taxation Under ITA 2025 refers to a simplified method of computing taxable income wherein income is estimated on a presumptive basis using specified indicators, such as turnover, gross receipts, or tonnage, instead of determining profits from detailed books of account and records. Under the Income-tax Act, 2025, presumptive taxation provisions are primarily contained in Section 58 for certain residents and Section 61 for specified non-residents, with the objective of reducing compliance burden and simplifying tax assessment.

Table of Contents

Introduction to Presumptive Taxation
Regular vs. Presumptive Approaches to Compute Taxable Income
Definition of “Presumptive Taxation”
Rebuttable Presumption
Irrebuttable Presumption
Purpose of Presumptive Taxation
Presumptive Taxation Under ITA 2025

Check out Taxmann's Presumptive Taxation which is a section-wise treatise on the complete framework under the Income-tax Act 2025, Income-tax Rules 2026, and Finance Act 2026. It reconciles nine erstwhile ITA 1961 provisions (Sections 44AD, 44ADA, 44AE, 44B–44BBD and Chapter XII-G) into the new Section 58 (residents), Section 61 (non-residents) and the re-numbered Tonnage Tax Scheme in Sections 225–235. Each chapter follows a comparative ITA 1961 vs. ITA 2025 template covering the specified assessee, presumptive regime, TDS/GST, compliance, opt-in/opt-out and tax audit—supported by 81 FAQs, case studies and four statutory appendices. Authored by CA. Srinivasan Anand G., this 2nd Edition is the definitive transition guide for Tax Year 2026-27 onwards.

1. Introduction to Presumptive Taxation

Provisions relating to presumptive taxation were contained in Sections 44AD, 44ADA, 44AE, 44B, 44BBA, 44BBB, 44BBC and 44BBD and 115V-115VZC of the Income-tax Act, 1961 (ITA 1961). Sections 44AD, 44ADA and 44AE have been repealed, replaced and merged into Section 58 of the Income-tax Act, 2025 (ITA 2025) whose marginal heading is

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

Sections 44B-44BBD have been repealed, replaced and merged into Section 61 of ITA 2025, whose marginal heading is

“Special provision for computation of income in respect of certain business activities in case of certain non-residents”.

The provisions of Tonnage Tax Scheme in Sections 115V-115VZC of ITA 1961 are now contained in Sections 225 to 235 of ITA 2025. The provisions of ITA 2025 shall apply with effect from Tax Year 2026-27. The ITA 2025 replaces “Previous Year” and “Assessment Year” with “Tax Year” with effect from Tax Year 2026-27. “Tax Year” corresponds to 1961 Act term of “Previous Year” used in ITA 1961. The concept of “Assessment Year” concept has been omitted by ITA 2025 to remove confusion in the minds of general public.

Though the words “presumptive basis” is used in the marginal headings of Sections 58 and 61 of ITA 2025, there is no definition of “presumptive basis” or “presumptive taxation” in these sections or in any other provisions of ITA 2025. Nor is there any definition of these terms in ITA 1961.

2. Regular vs. Presumptive Approaches to Compute Taxable Income

There are two approaches by which income can be assessed. One is by reference to the records and documents maintained by the taxpayer (assessee). The other approach is a simplified approach of estimating income of the taxpayer from simple indicators which are more easily measured than income itself. This simplified alternative approach which estimates income from indicators rather than computing it from accounts and records of the taxpayer is known as ‘presumptive taxation’. Presumptive taxation is all about inferring income from easily verifiable indicators of income rather than going through the hassles of ascertaining it from assessee’s accounts. Sl. No. 1 of the Table in Section 58(2) (Section 44AD of ITA 1961) uses the total turnover or gross receipts (volume of activity) as the indicator from which business income of the assessee can be estimated. In Sl. No. 3 of the said Table (Section 44ADA of ITA 1961), the indicator used is “gross receipts” from the specified profession of the taxpayer. Sl. No. 1 and Sl. No. 3 use financial indicators. In case of Sl. No. 2 of the Table (Section 44AE of ITA 1961), it is tonnage of trucks (carrying capacity of the trucks) which is a non-financial indicator. In case of tonnage tax scheme, it is tonnage of the qualifying ship (carrying capacity). This approach of ‘presumptive taxation’ is particularly used for Small and Medium Enterprises to relieve them from the burden of complying with the requirements of maintaining accounts and getting them audited and then explaining and substantiating the accounts to the tax authorities during scrutiny proceedings. Presumptive taxation regime for small businesses contributes to “ease of doing business”. The presumptive taxation model can be used even for large enterprises like Tonnage Tax Scheme for shipping companies for certainty in taxation purposes.

3. Definition of “Presumptive Taxation”

The Advanced Law Lexicon by P.R. Aiyar defines ‘presumptive tax’ as

“the use of appropriate indicators of income, wealth etc., instead of the actual records of these tax bases”.

Ehtisham Ahmad & Nicholas Stern in

‘The Theory and Practice of Tax Reform in Developing Countries’ define ‘Presumptive Taxation’ as “….procedures under which the ‘desired’ base for taxation (direct or indirect) is not itself measured but is inferred from some simple indicators which are more easily measured than the base itself.”

Victor Thuronyi in

“Presumptive Taxation of the Hard to Tax” defines ‘Presumptive Taxation’ as “….the use of indirect means to ascertain tax liability, which differ from the usual rules based on the taxpayer’s accounts. The term ‘presumptive’ is used to indicate that there is a legal presumption that the taxpayer’s income is not less than the amount resulting from application of the indirect method.”

It is not desirable that parties be made to prove the existence or non-existence of all facts as it will unnecessarily prolong the litigation. In tax context, it is very cumbersome for small businesses to substantiate the correctness of income disclosed in ITRs filed with reference to their accounts and records by substantiating the correctness of expenses debited in their accounts. Legal presumptions or presumptions are rules of evidence stipulated by law which reduce the workload and time of parties in giving evidence and of courts or authorities in evaluating and appreciating the same. Presumption is inference of certain facts drawn from other proved facts. [State of AP v. Vasudeva Rao AIR 2004 SC 960] Presumption may be rebuttable or irrebuttable.

4. Rebuttable Presumption

If the presumption is rebuttable presumption, it is not a final conclusion to be drawn from other proved facts. Rebuttable presumption in law of evidence is a rule indicating that Courts/authorities can draw an inference from certain proved facts and that inference stands until it is either disproved or dispelled. Unless, the presumption is disproved or dispelled, the Court/authorities can treat the presumption as tantamount to proof [See Section 2(1)(l) of Bharatiya Sakshya Adhiniyam which defines “shall presume”].

Where legal presumption used in the statute is rebuttable, the legal provisions provide that the tax authorities shall presume/infer that the taxpayer’s income is an amount deemed to be the amount specified in the legal provision (presumptive amount or deemed profits) or such higher income/profits declared by the assessee if the following facts are proved:

(a) Indicators from which profit/income of assessee from his qualifying business/profession is to be inferred (e.g. gross receipts or total turnover of business/Tonnage of trucks/gross receipts of profession).

(b) Assessee is a qualifying assessee who qualifies to have his income so presumed or inferred by applying the presumptive rate to the indicator (e.g. specified percentage of total turnover or gross receipts of business/specified rate per month or part thereof per ton of gross vehicle weight or unladen weight of each heavy goods vehicle owned by the assessee/specified percentage of gross receipts from profession).

(c) The business or profession carried on by the assessee is a qualifying business or profession whose profits can be presumed or inferred without going through or scrutinising the financial statements and books of account of the assessee.

(d) The assessee satisfies the conditions stipulated by the legal provisions to have his profits so presumed/inferred without scrutiny of his accounts or records.

The profits of the business or profession shall be presumptively determined as above if facts in (a) to (d) are proven to exist. The presumptive tax provisions based on rebuttable presumption allow the assessee (taxpayer) to rebut the presumption by establishing that actual income earned by him is less than the presumptive income (i.e. the amount presumed to have been earned by him in accordance with the legal provisions). The presumptive tax schemes contained in section 58 of ITA 2025 use the rebuttable presumption. The presumptive schemes in all these provisions are optional and a system of rebuttal has been provided. Assessee can rebut the statutory presumption as regards the income earned by him by maintaining books of account, getting them audited and furnishing the tax audit report.

5. Irrebuttable Presumption

If statute uses irrebuttable presumption, the taxpayer will be taxed on the presumptive income and will have no opportunity to establish that income earned by him is lower than the presumptive income. Section 61 of ITA 2025 dealing with presumptive taxation of profits from certain business activities of non-residents mostly uses irrebuttable presumption regarding the income earned by the assessee if the following facts are proved:

Qualifying assessee,
Qualifying business activities,
The indicators to be used for inferring income/profits from the business activities presumptively,
The conditions to be satisfied by the taxpayer.

If the presumption is irrebuttable presumption, it is a final conclusion as to the amount of profits generated by the business to be drawn by the tax authorities from above proved facts.

6. Purpose of Presumptive Taxation

The very purpose and idea of enactment of presumptive taxation provision is to provide hassle free proceedings. Such provisions are made just to complete the assessment without further probing provided the conditions laid down in such enactments are fulfilled. The presumptive income, which may be less or more than the actual income earned, is taxable. Such an assessee is not required to maintain any account books. This being so, even if, the actual income in a given case, is more than the income computed as per the presumptive income deemed to be so under the relevant provision, such actual income exceeding the presumptive income cannot be taxed. [CIT v. Nitin Soni [2012] 21 taxmann.com 447 (All.)].

Presumptive taxation provisions may also be enacted to make a sector of the economy internationally competitive. An example of the same is tonnage tax scheme for Indian Shipping Companies. The Finance Minister in his Union Budget speech of 2004 stated the objectives of Tonnage Tax Scheme as follows:

“107. The shipping industry has demanded the levy of a tonnage tax to make it intentionally competitive. Tonnage tax will also induce more ships to fly the Indian flag. I propose to accept the request. Consequently, …… shipping companies will now have only an option to pay the tonnage tax or normal corporate tax on profits.”

7. Presumptive Taxation Under ITA 2025

The applicability of presumptive tax provisions of ITA 2025 to residents are summarised in the table below:

Section	Depreciation	Other Deductions	Carry Forward and Set Off of Losses	Claim of Profit to Be Lower Than the Presumptive Rate	Applicability of Section 63 of ITA 2025 (Tax Audit)	Applicability of Provisions of Section 62 of ITA 2025 (Books of Account)
58(2) Table Sl. No. 1 (formerly Section 44AD of ITA 1961)	Deemed to have been actually allowed	Deductions u/ss 26 to 54 is deemed to have been allowed	The new provisions do not allow set off of losses from any other head of income or from any other business with its presumptive income. [Section 58(4)]¹	Allowed on Maintenance and tax audit of books	Do not apply where profit declared is as per Presumptive scheme Apply where provisions of Section 58(3) or Section 58(7) are applicable	Do not apply where profit declared is as per Presumptive scheme Apply where provisions of Section 58(3) or Section 58(7) are Applicable
58(2) Table Sl. No. 3 (formerly Section 44ADA of ITA 1961)	Deemed to have been actually allowed	Deductions u/ss 26 to 54 is deemed to have been allowed	–Do—	–Do—	Do not apply where profit declared is as per Presumptive scheme Apply where section 58(3) is applicable	Do not apply where profit declared is as per Presumptive scheme Apply where section 58(3) is applicable
58(2) Table Sl. No. 2 (formerly Section 44AE of ITA 1961)	Deemed to have been actually allowed	Deductions u/ss 26 to 54 are deemed to have been allowed. However, if assessee is a firm, salary and interest of partners are deductible subject to provisions of Section 35(e)	–Do—	–Do—	–Do—	–Do—-

The applicability of presumptive tax provisions of ITA 2025 to non-residents are summarised in the Table below:

Section	Depreciation	Other Deductions	Carry Forward and Set Off of Unabsorbed Depreciation and Brought Forward Losses	Claim of Profit to be Lower Than the Presumptive Rate	Applicability of Section 63 of ITA 2025 (Tax Audit)	Applicability of Provisions of Section 62 of ITA 2025 (Books of Account)
61(2) Table Sl. No. 1 (formerly Section 44B of ITA 1961)	Deemed to have been allowed [Section 61(4) and 61(5)]	Not allowable in view of Section 61(4)	Not allowable in view of Section 61(4)	No such provision as presumptive taxation is based on irrebuttable legal presumption	Do not apply, as based on irrebuttable presumption	Do not apply as based on irrebuttable presumption
61(2) Table Sl. No. 2 (formerly Section 44BBC of ITA 1961)	–Do–	–Do–	–Do–	–Do—	–Do	–Do—
61(2) Table Sl. No. 3 (formerly Section 44BBA of ITA 1961)	–Do—	–Do—-	–Do—	–Do—	–Do—	–Do—
61(2) Table Sl. No. 6 (formerly Section 44BBD of ITA 1961)	–Do—	–Do—-	–Do—	–Do—	–Do—	–Do—
61(2) Table Sl. No. 5 (formerly Section 44BB of ITA 1961)	–Do—	–Do—-	–Do—	Allowed on Maintenance and audit of books	Apply where income is claimed to be lower than Presumptive scheme	Apply where income is claimed to be lower than Presumtive scheme
61(2) Table Sl. No. 4 (formerly Section 44BBB of ITA 1961)	–Do—	–Do—-	–Do—	–Do—	–Do—-	–Do—