Section 44AD, 44ADA & 44AE vs Section 58: Presumptive Tax Under the 2025 Act

From 1 April 2026, resident small businesses, specified professionals and goods-carriage operators no longer need to navigate three separate presumptive-tax sections. The Income-tax Act, 2025 consolidates old sections 44AD, 44ADA and 44AE into section 58. The important point is that this is principally a structural simplification: the core presumptive rates, turnover/gross-receipt thresholds and scheme architecture continue rather than being replaced by a new tax burden.

Old law vs new law

Old law — Income-tax Act, 1961: section 44AD covered eligible small businesses; section 44ADA covered specified professions; and section 44AE covered the business of plying, hiring or leasing goods carriages.

New law — Income-tax Act, 2025: section 58 brings these resident presumptive schemes together in one table. Table serial no. 1 corresponds broadly to old section 44AD, serial no. 2 to old section 44AE, and serial no. 3 to old section 44ADA.

What actually changed?

The major change is consolidation and presentation. Instead of moving between three standalone provisions, taxpayers can now read the eligible activity, eligible assessee, turnover or gross-receipt condition and manner of presumptive computation in one statutory table. The Income Tax Department itself describes the change as consolidation into section 58 in tabular form with simplified language.

This matters operationally. Tax software, engagement letters, computation templates, working papers and client communications for Tax Year 2026-27 onward should refer to section 58 and the relevant table entry rather than continuing to label a fresh claim simply as section 44AD, 44ADA or 44AE.

What did not change?

For the ordinary small-business scheme corresponding to section 44AD, the threshold remains ₹2 crore, increased to ₹3 crore where cash receipts do not exceed 5% of turnover or gross receipts. Presumptive income continues at 6% for qualifying banking/online receipts and 8% for the balance, subject to a higher profit actually claimed.

For the professional scheme corresponding to section 44ADA, the familiar ₹50 lakh gross-receipt threshold and enhanced ₹75 lakh threshold where cash receipts do not exceed 5% continue, together with the 50% presumptive-income framework. The goods-carriage scheme is also carried into section 58 through its own table entry.

Accordingly, businesses should not treat section 58 as a fresh tax concession or an automatic reduction in taxable income. The principal legislative objective is simpler navigation and drafting.

Effective date and transition

The Income-tax Act, 2025 applies from 1 April 2026. Tax Year 2026-27 onward therefore uses section 58. However, periods beginning before 1 April 2026 remain governed by the repealed 1961 Act under the transition framework in section 536.

This creates an important compliance distinction in 2026: an AY 2026-27 return relating to FY 2025-26 continues under the 1961 Act and can still involve sections 44AD, 44ADA or 44AE, while presumptive computation for Tax Year 2026-27 falls under section 58 of the 2025 Act.

Worked example: small business

Assume a resident individual carries on an eligible trading business during Tax Year 2026-27 with turnover of ₹2.40 crore and cash receipts of only 2% of turnover. The ₹3 crore enhanced threshold can potentially apply because cash receipts do not exceed 5%. If ₹2 crore is received through qualifying banking/online modes within the statutory period and ₹40 lakh is treated at the 8% rate, the presumptive computation would be ₹12 lakh (6% of ₹2 crore) plus ₹3.20 lakh (8% of ₹40 lakh), or ₹15.20 lakh, unless the higher profit actually claimed applies. The computation is now located in section 58 rather than old section 44AD.

Practical implications for businesses and professionals

First, update section references in accounting and tax-compliance systems for transactions and computations belonging to Tax Year 2026-27 onward. Second, do not mix the old AY 2026-27 return framework with the new Tax Year 2026-27 framework. Third, preserve evidence supporting the 5% cash test because it determines access to the enhanced ₹3 crore or ₹75 lakh limits. Fourth, verify eligibility before assuming presumptive taxation applies: the statutory exclusions and assessee conditions remain important.

Frequently asked questions

Is section 44AD abolished?

For Tax Year 2026-27 onward, the corresponding resident small-business presumptive provision is in section 58 of the Income-tax Act, 2025. But section 44AD of the 1961 Act continues to matter for periods governed by the old Act.

Did the 2025 Act increase the presumptive-tax turnover limits?

The new Act carries forward the familiar ₹2 crore/₹3 crore framework for eligible businesses and ₹50 lakh/₹75 lakh framework for eligible professions, including the 5% cash-receipt condition for the enhanced limits.

Is this a substantive tax-rate change?

No. The Department describes the reform here as consolidation and simplification. Taxpayers should distinguish that structural change from a change in tax rates or thresholds.

Primary sources

Income Tax Department, Objective and Scope of the New Act FAQs — Q10.4 / presumptive-tax consolidation and section 536 transition guidance.

Income-tax Act, 2025 — section 58, “Special provision for computing profits and gains of business or profession on presumptive basis in case of certain residents”.

Income Tax Department, FAQs on Tax on Presumptive Taxation Scheme — current guidance on section 58 eligibility and operation.

Related PGT & Associates guidance

For the immediately preceding period, see our guide “Presumptive Taxation & Tax Audit AY 2026-27: Section 44AD/44ADA Rules”. It explains the old-law position applicable to FY 2025-26 / AY 2026-27. This article deals with the section 58 framework from Tax Year 2026-27 onward.

Conclusion

Section 58 is a useful example of what the Income-tax Act, 2025 is trying to achieve: fewer scattered provisions and a clearer statutory structure without automatically changing the underlying tax policy. For small businesses and professionals, the immediate task is therefore not to relearn presumptive taxation from zero, but to understand the new section mapping, keep the transition year straight and update compliance documentation accordingly.

Disclaimer: This article is for general professional information and education. Tax outcomes depend on the taxpayer’s facts, eligibility and law applicable to the relevant period. Obtain professional advice before acting on a specific transaction or filing position.