Income at Rs 12–15 lakh? These taxpayers may pay Rs 1 lakh extra tax under revised rules

For many professionals, presumptive taxation has always been seen as a simple and hassle-free way to file taxes. But a subtle shift in the new Income Tax Act, 2025 may change that understanding — and even increase tax liability in some cases.

Let’s break it down in a simple way. Here’s an example:

Let’s suppose one professional has gross receipts at Rs 24 lakh and actual profit of Rs 15 lakh.

How it would work earlier (Income Tax Act, 1961) for this professional under presumptive taxation law.

Under the earlier law, professionals could declare 50% of receipts as income

So taxable income = Rs 12 lakh (50% of Rs 24 lakh). So under the new tax regime, this could even mean zero tax due to rebate. This made presumptive taxation a convenient compliance option for many.

What changes under the new Income Tax Act, 2025

Now comes the shift.

Under a new reading of Section 58, if actual profit is higher than 50%, then actual profit may need to be considered. So in the same example, taxable income becomes Rs 15 lakh (instead of Rs 12 lakh).

That’s just a Rs 3 lakh increase in income — but the tax impact is much bigger.

Simple comparison: Old vs New

(Source: Taxbuddy)

Additional tax outgo: Rs 1,09,200

Jignesh Shah, Partner Direct Tax, Bhuta Shah & Co., explains: “Under the new Income-tax Act 2025, professionals opting for presumptive taxation may see an increase in taxable income (from 50% of gross receipts to actual profit, if higher), which could lead to an additional tax liability of around Rs 1,09,200 in certain cases.”

He further adds that the New Income Tax Act, 2025 has provided the scheme of presumptive taxation for professionals (as prescribed under Section 62) under Section 58. “The corresponding provisions under the Income Tax Act, 1961 were Section 44AA for specified professionals and Section 44ADA for presumptive scheme.”

What exactly has changed in law

Explaining the difference in wording, Shah notes that Section 44AA stated that 50% of gross receipts on exercise of specified profession is the bare minimum income chargeable to tax. However, a professional may claim a higher income and offer it to tax. Therefore, it can be inferred that the provision did not mention lower of (a) 50% of gross receipts or (b) Actual income on exercise of such specified profession.

But now, the interpretation appears tighter: “However, the provision of Section 58 of the New IT Act makes it very clear that higher of (a) 50% of gross receipts or (b) Actual income on exercise of such specified profession has to be offered to tax.”

Why professionals are concerned

This change is raising practical concerns:

If actual profit must be disclosed when higher

It reduces flexibility under presumptive taxation

Especially for professionals who don’t maintain detailed books

That’s where the discomfort begins.

Is this completely new?

Not entirely. Even earlier, tax officers could question declared income and they could assess higher income based on facts.

However, the difference now is clarity.

As Shah puts it: “To summarize, the language of the provision of Section 58 is more clarified to remove the erroneous interpretation that liability to offer income gets capped at 50% blanket irrespective of actual income.”

What is presumptive taxation

Presumptive taxation is a scheme where professionals don’t need to maintain detailed books and income is assumed at a fixed percentage (usually 50%) of receipts and tax is paid on that assumed income. It was designed to simplify compliance — especially for small professionals.

Summing up…

Same income. Same professional. Same receipts. Yet, due to a change in interpretation, taxable income may rise, tax liability may increase significantly. This is why professionals need to reassess whether presumptive taxation still works in their favour under the new law.

Disclaimer:

This story is for informational purposes only. It should not be treated as tax or legal advice. The final impact will depend on legislative wording, official clarifications, and interpretation by authorities. Even under the earlier law, tax officers could question and tax higher income. Consult a tax professional before taking any decision.