Can a Professional Opt Out of Presumptive Taxation Under the Income-tax Act, 2025?

Professionals such as doctors, lawyers, architects, accountants, engineers and consultants may be eligible to calculate their taxable professional income under the presumptive taxation scheme.

But is a professional required to continue using presumptive taxation every year? Can a professional declare actual profits instead?

Yes. An eligible professional can choose not to use presumptive taxation and can declare actual professional profits instead.

However, opting out may result in additional compliance requirements, including maintenance of books of account and tax audit, depending on the professional's gross receipts, profit declared and total income.

Presumptive Taxation for Professionals Under the Income-tax Act, 2025

Under the Income-tax Act, 1961, presumptive taxation for specified professionals was governed by section 44ADA.

From Tax Year 2026-27, the Income-tax Act, 2025 consolidates the presumptive taxation provisions for businesses and professions under section 58.

For an eligible specified profession, presumptive professional income is generally:

50% of gross professional receipts
OR
a higher amount actually claimed to have been earned.

Gross Receipt Limit

The professional presumptive taxation scheme is generally available where gross receipts do not exceed:

• ₹50 lakh during the tax year or
• ₹75 lakh where cash receipts do not exceed 5% of total gross receipts

For determining the 5% cash-receipt condition, receipts through a non-account-payee cheque or non-account-payee bank draft are also treated as cash receipts.

Who Can Use Presumptive Taxation for Professionals?

For the professional category under section 58, the eligible assessee generally includes:

• A resident individual or
• A resident firm other than a Limited Liability Partnership (LLP)

Therefore, an LLP cannot use the professional presumptive taxation scheme under this provision.

Specified Professions

Section 62(4) of the Income-tax Act, 2025 covers specified professions such as:

• Legal profession
• Medical profession
• Engineering
• Architecture
• Accountancy
• Technical consultancy
• Interior decoration
• Information technology
• Company secretary
• Any other profession notified by the Central Board of Direct Taxes (CBDT)

Can a Professional Opt Out of Presumptive Taxation?

Yes. Presumptive taxation is an optional method of computing professional income for an eligible professional.

A professional may choose to calculate taxable income using the regular method by considering actual professional receipts and allowable business or professional expenses.

Example

Suppose a consultant has gross professional receipts of ₹40 lakh.

Under the presumptive method:

₹40,00,000 × 50% = ₹20,00,000

The presumptive professional income would therefore be ₹20 lakh.

However, assume the consultant has substantial genuine professional expenses and the actual profit works out to only ₹14 lakh.

The professional may declare the actual profit of ₹14 lakh instead of ₹20 lakh, subject to complying with the applicable books-of-account and tax-audit requirements.

Tax Audit When Professional Profit Is Below 50%

Section 58(3) of the Income-tax Act, 2025 specifically deals with a professional who declares profit below the presumptive amount.

Where an eligible professional:

1. Claims professional profits lower than the presumptive amount specified under section 58(2) and
2. Has total income exceeding the maximum amount not chargeable to income-tax

the professional may be required to:

• Maintain prescribed books of account and supporting documents under section 62 and
• Get the accounts audited and furnish the prescribed audit report under section 63

Example: Declaring Profit Below 50%

The professional may declare ₹15 lakh as actual professional profit instead of the presumptive income of ₹20 lakh.

However, since the profit declared is below the prescribed presumptive amount, the books-of-account and tax-audit provisions must be examined.

What If Actual Profit Is More Than 50%?

A common misunderstanding is that 50% of professional receipts is the maximum amount that must be offered to tax.

This is incorrect.

Section 58 provides for taxation at:

50% of gross receipts or a higher amount actually claimed to have been earned.

For example, if:

• Gross receipts = ₹40 lakh
• 50% of receipts = ₹20 lakh
• Actual professional profit = ₹24 lakh

the presumptive provision should not be interpreted as permitting the professional to automatically restrict the disclosed income to ₹20 lakh where a higher amount is actually claimed to have been earned.

Is There a Five-Year Lock-In for Professionals?

No.

This is an important distinction between presumptive taxation for businesses and presumptive taxation for professionals.

Section 58(7) of the Income-tax Act, 2025 contains a five-tax-year restriction in specified circumstances for an eligible assessee using the business presumptive taxation scheme under Table Sl. No. 1.

Professional presumptive taxation is covered separately under Table Sl. No. 3.

Therefore, the five-year restriction does not apply merely because a professional stops using professional presumptive taxation.

Professional vs Business: Opting Out of Presumptive Taxation

₹50 Lakh Tax Audit Threshold vs ₹75 Lakh Presumptive Limit

Professionals should not confuse the enhanced ₹75 lakh presumptive taxation eligibility limit with the general professional tax-audit threshold.

Under section 63 of the Income-tax Act, 2025, a person carrying on a profession is generally required to get accounts audited where professional gross receipts exceed ₹50 lakh, subject to the presumptive taxation provisions and other applicable conditions.

Example

Suppose a professional has:

• Gross professional receipts: ₹60 lakh
• Cash receipts: less than 5% of gross receipts

The professional may fall within the enhanced ₹75 lakh eligibility limit for presumptive taxation.

However, if the professional chooses regular taxation instead, the normal professional tax-audit threshold under section 63 must separately be examined.

Books of Account When a Professional Opts Out

A professional following the regular method should maintain proper records supporting professional income and expenses.

Depending on the applicable provisions, relevant records may include:

• Professional invoices
• Bank statements
• Expense bills and vouchers
• Rent and office expenses
• Employee and salary records
• Professional fees paid
• Asset purchase records
• Depreciation schedules
• Travel and communication expenses
• Other documents supporting deductions claimed

Tax Audit Form Under the Income-tax Act, 2025

For Tax Year 2026-27 onwards, tax audit under section 63 of the Income-tax Act, 2025 is furnished using the applicable audit form prescribed under the Income-tax Rules, 2026.

CBDT's guidance provides for Form No. 26 for tax audit reporting under the new Act.

The earlier Forms 3CA, 3CB and 3CD continue to be relevant for earlier years governed by the Income-tax Act, 1961, including returns up to AY 2026-27.

Income-tax Act, 1961 vs Income-tax Act, 2025

What About FY 2025-26 / AY 2026-27?

The distinction between the old and new Income-tax Acts is important.

Income earned during 1 April 2025 to 31 March 2026 relates to FY 2025-26 / AY 2026-27 and continues to be governed by the Income-tax Act, 1961.

The Income-tax Act, 2025 applies from 1 April 2026, beginning with Tax Year 2026-27.

Therefore, professionals filing a return for AY 2026-27 should continue referring to sections 44ADA, 44AA and 44AB of the Income-tax Act, 1961.

Common Misunderstandings

1. Once I choose presumptive taxation, I must continue it for five years.

Not for professionals. The five-year restriction under section 58(7) relates to the specified business presumptive taxation provision and does not extend merely because a professional opts out of the professional presumptive scheme.

2. I only need to disclose 50% of my professional receipts.

Not necessarily. The provision refers to 50% of gross receipts or a higher amount actually claimed to have been earned.

3. If my receipts are below ₹75 lakh, tax audit can never apply.

Incorrect. ₹75 lakh is the enhanced presumptive taxation eligibility limit where the cash-receipt condition is satisfied. The regular professional tax-audit provisions must be examined separately where the professional does not use presumptive taxation.

4. The Income-tax Act, 2025 applies to AY 2026-27.

No. AY 2026-27 relates to income earned up to 31 March 2026 and continues to be governed by the Income-tax Act, 1961.

The Income-tax Act, 2025 applies from Tax Year 2026-27 beginning on 1 April 2026.

Key Takeaways

• An eligible professional can opt out of presumptive taxation.
• There is no five-year lock-in for professionals merely because they stop using the professional presumptive scheme.
• Professional presumptive income is generally 50% of gross receipts or a higher amount actually claimed to have been earned.
• If a professional declares profit below the prescribed presumptive amount, books of account and tax audit requirements may arise.
• The ₹75 lakh enhanced presumptive eligibility limit should not be confused with the general professional tax-audit threshold.
• AY 2026-27 continues to be governed by the Income-tax Act, 1961.
• The Income-tax Act, 2025 applies from Tax Year 2026-27 beginning 1 April 2026.

Conclusion

A professional is not required to remain under the presumptive taxation scheme indefinitely.

An eligible professional may choose regular taxation and declare actual professional profits instead of the presumptive amount. Unlike the restriction applicable to certain presumptive businesses, there is no corresponding five-year lock-in merely because a professional opts out.

However, professionals declaring profits below the presumptive amount should carefully examine the requirements relating to maintenance of books of account and tax audit under sections 62 and 63 of the Income-tax Act, 2025.

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