Presumptive taxation for professionals: The 50% rule remains-but what changes for deductions and losses under the new tax Act?

Ahead of the August 31, 2026 due date for filing Income Tax Returns (ITRs) for Assessment Year (AY) 2026-27 for individuals engaged in business or profession, many professionals, including doctors, advocates, architects, chartered accountants, engineers and technical consultants, want to know whether they can opt for the presumptive taxation scheme under Section 44ADA of the Income-Tax Act, 1961.

At the same time, the Income-Tax Act, 2025 (the New Act), which came into force on April 1, 2026, has given rise to a fresh set of questions about how the presumptive taxation scheme operates for AY 2026-27 under the 1961 Act and how it will operate from Tax Year 2026-27 onwards under the New Act. Will professionals continue to be taxed on 50% of their gross professional receipts? Have the eligibility conditions changed?

More importantly, does the New Act alter the treatment of deductions, losses and tax rebates, thereby affecting the attractiveness of the presumptive taxation scheme?


Section 44ADA of the Income-tax Act, 1961, which provides for taxation of professional income on a presumptive basis, applies for AY 2026-27 in respect of income earned during FY 2025-26. From Tax Year 2026-27 onwards, Section 58 of the New Act will govern the taxation of professional income on a presumptive basis.

Acareful analysis reveals an interesting picture. The broad architecture of the presumptive taxation scheme remains largely unchanged. However, Section 58(4) of the New Act introduces a significant change in the treatment of deductions and losses from April 1, 2026.

Who can opt for presumptive taxation & who can't?

The presumptive taxation scheme continues to be available only to resident individuals and resident partnership firms (other than Limited Liability Partnerships (LLPs)) engaged in specified professions under Section 44ADA of the Income-Tax Act, 1961 and Section 58 of the New Act.

The list of specified professions also remains substantially unchanged and includes the legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, information technology and company secretary professions, besides such other professions as may be notified by the CBDT. Under the Income-Tax Act, 1961, these professions are covered by Section 44ADA read with Section 44AA(1) and the notifications issued thereunder. The corresponding provisions under the New Act are Section 58 read with Section 62(4).

However, merely possessing a professional qualification does not make a person eligible for the presumptive taxation scheme. For example, a doctor employed by a hospital, an engineer working as a corporate employee, or an advocate serving as in-house legal counsel cannot opt for the scheme in respect of their salary income, since such income is chargeable under the head "Salaries" and not under the head "Profits and Gains of Business or Profession". The position changes if such individuals also independently practise a specified profession and earn professional receipts. In that case, the presumptive taxation provisions may apply to that professional income, subject to fulfilment of the prescribed conditions.

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The 50% rule and other key features remain unchanged

The key features of presumptive taxation under Section 44ADA of the Income-Tax Act, 1961 and Section 58 of the New Act remain substantially the same.

The gross-receipt thresholds continue to be Rs 50 lakh, or Rs 75 lakh where cash receipts do not exceed 5% of gross receipts. Receipts through cheques or bank drafts, which are not account payee, continue to be treated as cash receipts for this purpose.

The method of computing presumptive income also remains unchanged. Under both the Income-Tax Act, 1961 and the New Act, 50% of the gross professional receipts is deemed to be the income chargeable under the head "Profits and Gains of Business or Profession". If a professional declares a higher amount as actual profit, the higher amount becomes taxable.

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Where a professional claims profits lower than the prescribed presumptive income, the presumptive provisions do not apply. The income must instead be computed under the regular provisions of the applicable Act, with the prescribed books of account maintained and the accounts audited, wherever required.

The treatment of depreciation has also been retained. Although depreciation cannot be claimed separately, the written-down value (WDV) of assets used for the profession continues to be computed as if depreciation had actually been allowed for each relevant year. This prevents the taxpayer from obtaining a double benefit when depreciation is subsequently claimed under the regular provisions.

Similarities at a Glance

Key Features	AY 2026-27	Tax Year 2026-27onwards
Eligible persons	Resident Individual and Partnership Firm (excluding LLP)	Same
Gross receipt limit	₹50 lakh; ₹75 lakh where cash receipts, including receipts through cheques or bank drafts that are not account payee, do not exceed 5% of total gross receipts	Same
Presumptive income	50% of gross receipts or higher income declared	Same
Where regular provisions apply	Where income declared is lower than the presumptive income and the prescribed conditions are satisfied (Section 44ADA(4))	Same (Section 58(3))
Depreciation	Deemed to have been allowed (Section 44ADA(3))	Same (Section 58(6))

As the comparison shows, the eligibility conditions, gross-receipt limits, presumptive income percentage, books and audit requirements and treatment of depreciation have all been substantially retained. The important exception is Section 58(4), which introduces a significant change in the treatment of losses, allowances and deductions against presumptive professional income. This distinction becomes particularly relevant for professionals with losses or deductions that they might otherwise seek to adjust against such income.

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Beyond the 50% rule: The Section 58(4) difference

Section 44ADA(1) begins with a non obstante clause overriding Sections 28 to 43C of the Income-Tax Act, 1961. Similarly, Section 58(1) provides that Sections 26 to 54 of the New Act shall not apply to the extent they are contrary to the presumptive taxation scheme. These provisions broadly contain the rules relating to allowances and deductions while computing income under the head "Profits and Gains of Business or Profession". Thus, both Section 44ADA and Section 58 operate as special provisions that override the normal rules of computation applicable to professionals who are not covered by the presumptive scheme.

Under the Income-tax Act, 1961, Section 44ADA(2) provides:
"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."

The restriction under Section 44ADA(2) is therefore specifically linked to allowances and deductions under Sections 30 to 38, which form part of the normal computation of business or professional income.
The important difference under the New Act lies in Section 58(4). Its restriction goes beyond the allowances and deductions covered by Sections 26 to 54, which form part of the normal computation of business or professional income. The section reads as under:

"Any loss, allowance or deduction allowable under the provisions of this Act shall not be allowed against the income computed under the presumptive scheme."

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The significance lies in the words "under the provisions of this Act". Unlike Section 44ADA(2), Section 58(4) is not expressly confined to deductions arising under the provisions dealing with computation of business or professional income. On a plain reading, its language extends to any loss, allowance or deduction otherwise allowable under the Act, where it is sought to be allowed against the presumptive income.

Was the wider wording a drafting error or a deliberate change?

One may initially think that the use of the wider expression "under the provisions of this Act", instead of a narrower reference to "under the provisions of this Chapter" dealing with the computation of business or professional income, could be a drafting error.

However, the Report of the Select Committee of the Lok Sabha on the Income-Tax Bill, 2025 indicates that the wording was examined by the Committee and that the Government's rationale for using it was accepted. The provision was subsequently retained in the New Act.

This legislative history is significant because it indicates that the wider wording of Section 58(4) was not merely an inadvertent drafting error. It reflects a conscious legislative approach to restrict the allowance of losses, allowances and deductions against income computed on a presumptive basis.

Thus, while the 50% presumptive income rule, eligibility conditions, gross-receipt thresholds, depreciation treatment and audit framework remain substantially unchanged, Section 58(4) represents a significant change in the scope of deductions and loss set-off against presumptive professional income.

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Does Section 58(4) affect the tax rebate?

Section 58(4) does not affect the availability of the tax rebate under Section 156 of the New Act, which corresponds to Section 87A of the Income-Tax Act, 1961, where the taxpayer otherwise satisfies the prescribed conditions.


Section 58(4) provides that any "loss, allowance or deduction" allowable under the Act shall not be allowed against the income computed under the presumptive taxation scheme. A tax rebate, however, is not a "loss, allowance or deduction" from income; it is a rebate of tax computed on the taxpayer's total income.
Therefore, on a plain reading of Section 58(4), the provision does not restrict or deny the benefit of the rebate under Section 156 merely because professional income has been computed on a presumptive basis. Accordingly, where the prescribed conditions are otherwise satisfied, the rebate under Section 156 should remain available.

Presumptive taxation and tax regime: Does the choice matter?

The presumptive taxation provisions are available under both the default tax regime and the optional tax regime, subject to the applicable conditions. This position continues under both the Income-Tax Act, 1961 and the New Act.


However, professionals should keep in mind that the exercise or withdrawal of the option to choose the tax regime is subject to the respective conditions contained in Section 115BAC(6) of the Income-Tax Act, 1961 and Section 202(4) of the New Act.

The takeaway: Look beyond the 50% rule

The transition from Section 44ADA of the Income-Tax Act, 1961 to Section 58 of the Income-Tax Act, 2025 is, in many respects, more a matter of legislative reorganisation than a fundamental change in the presumptive taxation framework. The eligibility conditions, gross-receipt thresholds and 50% presumptive income rule have been substantially retained. For professionals with relatively simple tax affairs and no significant deductions or losses to claim, the presumptive taxation scheme is likely to remain attractive because of its simplicity and reduced compliance burden.


The important exception is Section 58(4). Its wider language restricts the allowance of losses, allowances and deductions against the presumptive income computed under Section 58(2). It does not, by itself, mean that such losses or deductions cease to exist altogether or that they cannot be allowed or set off against income under other heads where the Act otherwise permits. Professionals should therefore look beyond the familiar 50% rule and understand the implications of Section 58(4) while determining the tax consequences of their professional income from Tax Year 2026-27 onwards.


For professionals filing their AY 2026-27 returns, Section 44ADA continues to govern professional income earned during FY 2025-26, while Section 58 applies to professional income earned on or after April 1, 2026.
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The author, O.P. Yadav, is a former IRS officer with over 36 years of experience in tax administration, education, and training. He is presently associated with Prosperr.io as Tax Evangelist. The views expressed are persona